INNOVATION & START-UP
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Bike-sharing services

Did Shanghai’s commissar just endorse bicycle-sharing apps with his ride around city?

Party Secretary Han Zheng’s recent high-profile use of bike-share finally appears to remove some doubt over the future of the service

PUBLISHED : Monday, 17 July, 2017, 8:00am
UPDATED : Monday, 17 July, 2017, 8:00am

Shanghai’s most senior official appeared to give his tacit approval to the city’s popular bike-sharing schemes recently when he very publicly chose two wheels to carry out an inspection tour along the city’s Huangpu riverfront.

For users and operators of the services, this apparent endorsement from Shanghai Communist Party boss Han Zheng has provided some relief from the uncertainty surrounding the attitude of the authorities to the bicycle-sharing concept. The future of the initiatives had looked in doubt amid a lack of clarity on official policy and some mixed signals from the government.

The government is obviously taking a positive stance on the bike-sharing businesses
Frank Feng, bike-share enthusiast

The event that saw Han take to the saddle was supposed to be about promoting the paths along the riverside that foster public health by encouraging walking, running and cycling. But the party secretary’s unexpected decision to pedal his way along the 25 kilometre route on a hired bicycle was what grabbed the public’s attention.

The event, supported by official press releases, was widely interpreted by delighted local residents as an implicit public approval of – and, indeed, a free advertisement for – Ofo and Mobike, the two dominant players in the bike-sharing sector.

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“It was more than a free ad,” said 30-year-old Frank Feng, a frequent user of bike-sharing services. “[It shows that] the government is obviously taking a positive stance on the bike-sharing businesses.”

Users like Feng have to deposit 299 yuan (US$44) as a cash deposit to use Mobike services and 100 yuan for riding Ofo’s bikes. They then pay 0.5 to 1 yuan for using the bike each time, about half the price of taking a bus.

Anecdotal evidence shows many users have been worried about the outlook for the bike-sharing businesses in the absence of a clear-cut attitude from the authorities.

In late February, urban management authorities in Shanghai seized about 4,000 bikes belonging to the schemes because they were illegally parked or were causing congestion.

Local authorities sounded a warning to the operators that the bicycle-sharing industry couldn’t be allowed to develop if the price was bikes blocking the roads.

In March, Shanghai published rules governing the bike-sharing industry, which included requiring the bikes to be parked in “designated areas” so as not to cause additional congestion.

This is a very important message to the market and the users because government policies, in many cases, play a decisive role in a new business
Cao Hua, partner, Unity Asset Management

According to the state-owned Labour Daily, the number of bikes used in the schemes surpassed 1 million recently, and they had attracted 10 million registered users in a little over a year.

Bike-sharing has become a red-hot investment market in the mainland in tandem with Beijing’s Internet Plus strategy under which the government encourages businesses to use the latest online and mobile technologies to enhance business efficiency.

Earlier this month, Beijing-based Ofo received more than US$700 million in the latest round of financing from an investing group led by Alibaba Group – owner of the South China Morning Post – Hony Capital and Citic Private Equity. That followed fundraising of US$600 million by its archrival Mobike in June.

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Affordable to average wage earners, bike-sharing has been changing people’s commuting habits.

Han said in March that bike-sharing had been well received by city residents, and the municipality would actively embrace the emerging industry and plan meticulously for its development.

“Han’s use of the services in a high-profile public event reflected the Shanghai authorities’ official endorsement to liberalise the public transportation sector, with bike-sharing becoming the top beneficiary,” said Cao Hua, a partner at Unity Asset Management. “This is a very important message to the market and the users because government policies, in many cases, play a decisive role in a new business.”

On the mainland, the explosive growth of a new business model which threatens to break the monopoly of state-controlled companies could be seen as a menace to the social and economic order, with existing players likely to suffer losses and slash jobs to compete.

Local governments, in a bid to protect state-owned businesses, often take a go-slow approach in licensing start-up firms, or even use their administrative powers to curb their growth.

In recent years, the online payment, car-hailing and social media sectors all had to grapple with policy restrictions before penetrating into the fabric of Chinese people’s everyday lives.

Developed economies have started to import China’s new business models, such as bike-sharing, in innovating businesses
Raymond Ma Lei, portfolio manager, Fidelity International

A lack of clarity in policy-making has often left business operators and users playing a guessing game as to whether new services would be short-lived. The possibility of an outright government ban has cast a dark shadow over the future of many a disruptive industry.

Bureaucracy is increasingly becoming a stumbling block to the country’s deepening market-based reform as thousands of businesses rev up their development and expansion to meet the leadership’s calls for “mass entrepreneurship and innovation.”

China, the world’s second-largest economy, aims to transform itself into an innovation powerhouse to sustain economic growth now that it has lost its lustre as the world’s manufacturing hub owing to rising labour and land costs.

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“China is no longer a copycat in the technology sector,” said Raymond Ma Lei, a portfolio manager focusing on A shares at Fidelity International. “Instead, developed economies have started to import China’s new business models, such as bike-sharing in innovating businesses.”

Feng said he gave the party secretary the “thumbs-up” for his supportive attitude towards bike-sharing.

“A good cadre is supposed to grant ordinary people their wishes,” he said. “He seems to have fully understood the demands from the people, and he deserves full marks for doing so.”