Can China sustain its booming sharing economy?

Photo: Michel Temer/CC BY 2.0

Services which let people access shared goods and facilities need careful management to reach their full financial and social potential.

By Nicolette Chua, edited by Francesca Ross

More than half of China’s 1.4 billion population have used online sharing services at least once. These include transportation services, lodging, auction sites and more. Chinese start-ups have also come up with novel ideas such as basketball, umbrella and portable battery rental services. The transportation industry has seen some of the biggest changes.

Online sharing services have been technological disruptors in virtually every sector. Facilities such as peer-to-peer buying, selling and renting have given consumers increased purchasing power. This shift is revolutionising consumption patterns in China and could become the principal consumption model.

The sharing economy has taken Asia by storm

The Chinese government hopes that the sharing economy will account for around one tenth of its Gross National Product (GDP) by 2020. This indicates “China’s aspiration to become a sharing economy leader on a global scale,” said a report from Reuters.

Figure 1

Source: eMarketer

The sharing economy revenues have seen an upward trend since 2012 (see Figure 1), a study by iiMediaResearch showed. It was valued at nearly RMB 4 trillion (US$502 billion) in 2016. It is projected to rise to RMB 7.5 trillion in 2018. Nearly 60% of Chinese internet users felt that the sharing economy promotes a proper allocation of resources, the same study suggested.

This model is also picking up pace in other Asian countries. Around 78% of Asia Pacific consumers are willing to share or rent their assets, a 2013 Nielsen survey showed. 81% of these consumers also said they were likely to participate in a sharing economy. The global average is 66%.

Source: eMarketer

Total investments in the sector reached RMB 171 billion (US$25 billion) in 2016, said the State Information Centre. Venture capital firms such as IDG and Sequoia Capital China have invested over RMB 1 billion (US$146 million) in various power bank-rental startups.

Chinese tech start-ups supersede their Western counterparts

China’s transportation sector has been transformed by the rise of the sharing economy. Ride-sharing platform Didi Chuxing (formerly Didi Kuaidi) acquired international rival Uber’s Chinese unit in August 2016 after the larger operation struggled to break into China’s market. Didi Chuxing completed over 1.4 billion rides in 2015. This illustrates the much higher success rate of homegrown start-us. Uber took six years to surpass even one billion rides.

Bicycle-sharing firms such as Ofo and Mobike have been locked in their own battle for market share. Their bicycles are enabled with QR codes and a GPS which allows users to find a bicycle anywhere in a city, ride to their destination and leave it for the next user.

These types of facilities have a total of over six million weekly users, suggested data from the World Economic Forum. This has made bicycles the second or third most-used form of public transport in some cities. This shows how sharing services can easily make products and ideas more accessible and convenient.

China-based home-sharing platform Tujia has beaten Airbnb on the challenge of penetrating the Chinese hospitality market. Tujia’s approach is like Airbnb as they work with real estate developers, agents, and owners to manage their properties. The difference between the two is that Tuija also outsources cleaning, laundry and other services.

This additional facility makes them more popular among Chinese homeowners. This type of ingenuity and a keen understanding of Chinese culture have significantly contributed to the present success of Chinese start-ups.

China’s tech-savvy population may fall out of love with the sharing economy

China’s large number of tech-savvy millennials have embraced mobile payments systems such as Alibaba Group Holding Ltd.’s Alipay, and Apple Inc.’s Apple Pay. These Chinese mobile-based payment services have surpassed the use of the same facilities in America by up to 50 times. This suggests a bright future for similar tech-based solutions to everyday problems.

The problem for the sector is that low barriers to entry will mean that markets for sharing services may eventually become oversaturated. Smaller firms will then go bankrupt due to increased competition. This is already happening in the bicycle-sharing sector where firms are vying for market share rather than earning real profits.

Social responsibility is the key to sustainability

The current phenomenon must be viewed from both an economic and socio-cultural perspective. Private common goods become shared assets in a sharing economy. This means a high degree of social responsibility is crucial to sustaining such a model.

“The focus on community building, social capital is slim to none and the sharing economy definition is so broad it is almost meaningless. These are fixable challenges, but they do require being proactive around language, strategy and policy,” explained April Rinne. an independent advisor to the World Economic Forum and member of China’s national sharing economy committee.

Shared services and goods are as easy to abuse as they are to use. They depend on an “honour system” to sustain their businesses. Chinese society still has a long way to go in these terms.

Bike-sharing firm Wukong shut down due to large-scale bicycle theft. Wukong failed to equip its bicycles with GPS devices which meant they could not be tracked. The smartphone-based start-up lost 90% of its bicycles, so RMB 2 million (US$292,890) of initial capital, within five months of its launch.

Ethical and environmental concerns need to be addressed

Environmental issues are another key challenge to the growth of sharing services. Researchers from the Institute of Public and Environmental Affairs (IPE) discovered bicycle manufacturers were producing at full capacity without accounting for their environmental impact. In one worrying example Mobike’s magnesium alloy wheel hub manufacturer had been directly releasing dust and toxic substances into the air.

This illustrates how the fast-growing sharing economy has stumped public policy decision-makers. The government should be firmer in imposing and enforcing regulations on online-sharing services and their suppliers. Government officials have already reversed their stance on companies such as Didi Chuxing. There are now restrictions on driver eligibility to reduce the supply of private-hire drivers and protect local markets.

There is no doubt the sharing economy has already radically transformed the Chinese economy. The next step is to ensure further growth is balanced against concerns about ethics. The system may already be beneficial for some, but it needs to be sustainable for all.