China’s sharing economy headed for troubled waters as funding pinch signals end of easy money for start-ups
Just as Warren Buffett’s saying goes, it’s only when the tide goes out that you learn who’s been swimming naked.
China’s booming sharing economy may be about to have its own day of reckoning amid growing evidence that financing activities have reached their high water mark. The industry raised a record 216 billion yuan (US$34.28 billion) last year, an increase by more than a quarter compared from a year earlier, according to a report by the State Information Centre.
“Competition among platform companies will grow fiercer, accompanied by an increasing number of mergers and acquisitions,” said the State Information Centre’s report for March, adding that policy guidance is expected to play a bigger role to ensure “overall quality” development.
With entrepreneurial fever sweeping the nation and the backing of affluent venture capital funds, China has seen the sharing economy take off over the past two years.
Reminiscent of the dotcom boom in the late 1990s, many start-ups in China have raised millions of dollars by promoting concepts linked to the sharing economy.
However, the flood of money has begun to cool since the second half of last year.
Among the most prominent sectors attracting institutional investment is bicycle sharing, which has been popularly referred to as one of China’s four modern-day “inventions”, together with high-speed rail, mobile payments and online shopping. The reference itself is a nod to the country’s heritage for innovation and invention relating to gunpowder, the compass, the making of paper and book printing.
Six sharing bike platforms have run into difficulty since June, according to the State Information Centre. Among them, Bluegogo, once China’s third-largest player, ceased business operations in November due to lack of cash. Others that closed down that month included Wukong Bicycle, which folded after just five months, and 3Vbike, which focused on third-tier cities. November also saw the demise of Mingbike and Kuqi Bike, both of which have been sued by local customer watchdogs for refund failures.
“The bike-sharing sector has accumulated tens of billions of yuan in deposits. When users complain of difficulty in claiming them back, it sparks public concerns towards the sharing economy in general,” said the report.
At its peak, there were about 100 companies offering similar short-term bicycle rental services in China.
Other casualties of the sharing economy involve concepts beyond bicycle sharing. Beijing-based car-sharing companies Ezzy and Youyou, as well as umbrella-sharing company Huoli Modeng and sleeping-capsule sharing enterprise Xiangshui Space have all folded.
These start-ups typically failed because they exhausted their funds before being able to find a sustainable profit model. Often they had to give away their products and services for next to nothing in an effort to build a sizeable user base that could be monetised.
Nevertheless, hope for the sharing economy remains high on a national level, which contributes around 7.16 million jobs, the report said. Among all urban new jobs created last year, about one in 10 came to existence because of sharing economy.
“Application of new technologies such as big data, cloud computing and artificial intelligence will lead the sharing economy to innovate further and optimise services, while ensuring transaction safety,” the report said.
The report cited agriculture, education, health care and elderly care as areas likely to next draw attention and funding.