After the Crash: Checking In on China’s Bike-Sharing Industry
Every morning between 8 and 9 a.m., commuters in cities across China exit the subway, pull out their phones, scan a QR code, and rent a bike to traverse the final few hundred meters from the station to their offices. At peak hours, there are between dozens and hundreds of bikes packed along the sidewalks outside most major transit hubs. To meet rider demand, bike-rental companies maintain fleets of trucks to transfer bicycles from around the city back to subway stations, sometimes several times a day.
These bike rental firms are still living in the shadow of the “bicycle wars”: a protracted, venture capital-funded fight between Ofo and Mobike that took place from 2016 to 2017. Both companies wanted to be “Uber for bike sharing”; together, they spent hundreds of millions competing to see who could build the biggest bike fleet — and collect the most user deposits. For consumers, this had its advantages: Competition kept fares artificially low, with frequent discounts and plenty of bicycles strewn across cities. For officials, the bikes were a management nightmare, clogging sidewalks and inconveniencing pedestrians.
In August 2017, China’s Ministry of Transportation, together with ten other departments, jointly issued new rules requiring urban officials and enterprises to regulate bike parking, standardize services, and guarantee the safety of users’ deposits. The bike-rental industry underwent a sudden contraction, with tens of millions of bikes removed from city streets. In the end, both firms lost, leaving debt and vast bicycle graveyards behind.
Ofo and Mobike’s missteps, however serious, did not kill the bike rental industry in China. If anything, in the aftermath of the bicycle wars, the industry seems increasingly stable, with firms like Qingju, Meituan, and Hello carving up the market. According to a 2020 report issued by data agency EqualOcean, these three companies have entered a combined 400 cities and have tens of millions of monthly active users.
With far fewer bikes allowed on city sidewalks — and far less competition from smaller players that didn’t survive the crash — fleet management has become a game of chess. The more vehicles a company maintains, the higher its operations costs will be and the more scrutiny it will receive from regulators. Failure to deploy enough bikes, however, will result in low exposure — and runs the risk of alienating users unable to find a ride when they need one.
This has forced firms to refine their vehicle management and dispatching techniques. Part of the puzzle is getting users to park their bikes properly after a trip. Bike rental companies have developed many technical solutions to this problem, including using geofencing technology to draw lines around designated parking areas within the app. Users can confirm whether they parked in a permitted area after their ride. If they don’t, they may be charged an extra fee; repeat violators may lose eligibility for discounted monthly or annual subscriptions. Some cities have even set up Bluetooth markers in designated parking areas to sense if a bicycle has been parked properly. If a bicycle is outside the Bluetooth module’s range, it will not lock, and riders will continue to be charged.
Of course, while regulatory compliance is important, bike rental companies’ real concern is still ensuring profitability.
Let’s do the math. Today, most Chinese bike rental services cost 1.5 yuan ($0.24) per 15 minutes, with subscription plans offering a less expensive alternative for frequent riders. At Hello, bikes cost 0.3 yuan a day to maintain, with an additional depreciation of 0.6 yuan a day. In theory, as long as each bike is ridden once a day, the company earns a profit, and in most cities where Hello operates, the average bike usage rate is more than three times that.
Still, these are thin margins, and they don’t take into account other operating costs, such as research and development or marketing. But China’s bike rental firms think they have a solution: shared e-bikes. E-bike rentals are more expensive than ordinary bike rentals, running riders anywhere from two to four yuan per 30 minutes. They also allow users to travel longer distances: Rented bikes are generally used to cover distances under three kilometers, but e-bikes can easily cover as many as eight kilometers.
Urban officials, who haven’t forgotten the chaos of the bicycle wars, are lukewarm about e-bikes’ potential. In addition to the usual road safety issues, city leaders are concerned about the impact e-bikes will have on already cash-strapped public transportation and taxi networks. Rented bikes were good for taking commuters the last few hundred meters from their bus or metro station to work, but omnipresent e-bikes could render the public transportation leg of the journey utterly obsolete.
Beijing, Shanghai and Guangzhou have already made it clear that they are not interested in e-bike rental services, though many smaller cities have yet to take a clear stance. Another important question is how companies will charge the e-bikes. In the early stages, operating companies would take the vehicles back to suburban warehouses for charging and then put them back on the road, or send dispatchers out to replace the batteries. Neither option is particularly cost-effective.
There is another option. Rather than hoping to achieve profitability through bike rentals alone, companies could use bike rentals as a high-frequency, high-quality, low-unit-price traffic portal to channel and empower their higher margin businesses. For example, Meituan’s app already allows users to switch seamlessly between the company’s bike sharing service and its other businesses, including take-out and hotel bookings. The ride-sharing service Didi, which operates Qingju, sees the bikes as a way to reach consumers in smaller cities, expand user volume, and drive app engagement. Hello is also moving to incorporate lifestyle services, including travel, into its app.
This gets at a key difference between Chinese internet companies and their Silicon Valley counterparts: Chinese firms — right on down to the simplest bike rental company — all dream of becoming indispensable, versatile platforms essential for users’ daily lives.
Translator: Matt Turner; editors: Wu Haiyun and Kilian O’Donnell; portrait artist: Wang Zhenhao.
(Header image: A woman pushes a shared bike in Kunming, Yunnan province, June 20, 2020. People Visual)