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China technology

China's bike-sharing war seen entering crucial stage with Mobike going deposit free

Mobike’s change leaves Ofo as the only major bike sharing firm in China that doesn’t have a deposit free plan

PUBLISHED : Friday, 06 July, 2018, 11:14am
UPDATED : Friday, 06 July, 2018, 10:03pm

Chinese bike-sharing firm Mobike’s move to go deposit free will likely increase the pressure on rival Ofo, as competition hots up in a cash-intensive industry whose players have struggled to turn a profit.

Mobike, the Chinese bike-sharing firm owned by Meituan-Dianping, said on Thursday that its users no longer need to pay deposits to rent bikes and it will refund those users who have already paid them. The Mobike service will also be put into a Meituan app that integrates on-demand services in China.

Previously Mobike customers were required to pay a 299 yuan (US$45) initial deposit to start using the company’s dockless bicycles and the move comes only four months after its rival, Ant Financial-backed HelloBike, said users with a score of more than 650 on Sesame credit, a social credit system developed by Alibaba affiliate Ant Financial, no longer need to pay deposits. This leaves Ofo as the only major bike-sharing firm in China that doesn’t have a deposit-free plan and analysts expect the Beijing-based firm to come under increased pressure.

“If Ofo cancelled its deposit scheme it would create further cash-flow problems,” said Xue Yu, an analyst at research firm IDC. “However, it poses less of a problem for Mobike as it has Meituan behind its back.”

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Competition in China’s bike-sharing scene has intensified with dozens of participants now effectively whittled down to a game of three main players. Beijing-based Ofo and HelloBike are backed by Alibaba Group and Ant Financial respectively, while Tencent-backed Mobike was acquired by Meituan for US$2.7 billion in April. At stake is an industry that is potentially worth about 24 billion yuan (US$3.8 billion) by 2019, according to market research firm iResearch.

Last month, Ofo founder and CEO Dai Wei said at an internal meeting that the company was undergoing its “Darkest Hour” and sought to rally employees behind the firm, saying it would remain independent in future, people familiar with the situation said previously. However, many people have left the firm and staff travel has been curtailed, people familiar said.

Ofo has tried to boost revenue by accepting paid advertising on its services. However, it cancelled deposit-free tests based on Sesame Credit in China’s 20 cities, saying it would begin to “develop a credit system of its own”. Some users also said that when they tried to get a deposit refund on Ofo’s app they received an alert saying they would have to pay a higher deposit next time they used the service.

An Ofo spokeswoman could not be reached for comment immediately.

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HelloBike mainly operates bike-sharing services in China’s second and third-tier cities, processing about 20 million orders per day, it says. The company received a fresh cash injection of 2 billion yuan (US$301 million) from Ant Financial last month.

Meanwhile China’s bike sharing industry is expected to slow this year. The number of bike-sharing users in the country is forecast to grow 14.6 per cent in 2018, a steep drop from growth of over 600 per cent in 2017, according to a report by iiMedia, a China-based market research firm. In May, Ofo’s daily active users reached 7.3 million, Mobike’s 6.2 million, and HelloBike had 114,300, according to iiMedia.

None of the bike-sharing companies have been able to turn a profit yet, meaning they will have to rely on fresh capital injections to sustain operations. The bike rental industry in China has also come under pressure recently as dozens of Chinese cities including Beijing, Shanghai and Shenzhen, have barred companies from putting more new bikes on the streets to avoid widespread traffic congestion.

Alibaba is the parent company of the South China Morning Post.