The next big challenge in China’s sharing economy

China’s blooming sharing economy stumbles as depleting funding and obstacles hinder its growth.

Edited by Joelyn Chan

China is at the forefront of the sharing economy – a peer economy ignited by Airbnb-type of startups. The government’s work report first mentioned the term “sharing economy” in 2016 and noted, “Supporting the development of a sharing economy and improving the efficiency of resource usage to make more people participate and become more affluent.” Today, the burgeoning sharing economy helps to fuel China’s economic development. Its transaction volume exceeded US$500 billion in 2016 and grew 103% year-on-year. The sharing economy is also predicted to grow 40% annually and account for over 20% of China’s Gross Domestic Product (GDP) by 2025.

In July this year, the first session of China Sharing Economy CEO Summit was held. It heralded the rise of Ningbo city as a centre for the sharing industry’s unicorn projects. Authorities will push for speedier development in this sector by modifying laws regarding taxation, land use, investment and more.

 China’s sharing economy sets the way forward with a variety of sharing sectors

The tables have turned as US firms now follow the Chinese companies. Limebike is one bicycle sharing startup that implemented China’s dockless, QR code model. It marks the start of more upcoming adoption of China’s innovations.

At the helm of the sharing economy, the bike-sharing sector has many success stories on how it relieves transportation frustrations. In July, Mobike raised US$600 million, ofo followed suit and announced that it had raised US$700 million from investors, setting a new record in the bike-sharing industry.

However, things are not always this rosy, especially for smaller players. Two victims of this cut-throat industry are Wukong Bike and 3Vbike, which both ceased operations in June 2017. Less than five months into operations, both firms had their GPS-lacking bicycles stolen and vandalised. Evidently, securing investors’ funding did not translate to immediate success. The sharing economy is fraught with challenges, as the business models rely on trust between consumers and the startups.

Besides bike-sharing, other types of sharing emerged – such as mobile battery-sharing, basketball sharing and umbrella-sharing. Power bank-sharing firms raised a total of RMB 1.2 billion (US$183 million). Launched in April 2017, an umbrella-sharing firm E Umbrella, lost over 300,000 umbrellas within three months.

Is the sharing economy oversaturated?

The promising returns of the sharing economy attracted immense funding. Many technology companies, like Tencent, are springing up to claim a slice of the pie.

Source: China’s State Infomation Centre

During this period of explosive growth in the sharing economy, mere funding is insufficient to strengthen the firms’ long-term plans. The overcrowding sector cries for differentiation and more legislation to manage the grey areas between firms and users.

In the list of existing bike-sharing firms, there are repetitions of firms providing similar services. The repetition makes it harder for differentiation. Coupled with a reputation system, trust between the service provider and user would be the determining factor of an enduring business. Otherwise, the shared resources or inventory like umbrellas may keep vanishing, making it highly unsustainable for companies operating in the sharing economy. There is limited funding, and the startups cannot just keep buying inventory for their customers to share.

Nonetheless, the current challenges are minor hiccups. With numerously varied startups that are backed by technology giants, the Chinese economy and its 1.3 billion population are poised to benefit from this rapidly growing sector. Next up, we can expect to see sharing of market information and production capacity in the manufacturing sector.