Winter looks set to rapidly cool this year’s hottest start-up trend in China as the cash-burning bike-sharing industry claims another victim and dashes the hopes of thousands of more riders waiting to get their deposits back.
Guangzhou-based Mingbike appears to have gone bust after numerous complaints by customers that they have been unable to reclaim their 199 yuan (US$29.87) deposit.
Chinese media reported on Thursday that the company laid off 99 per cent of its staff, some of whom posted complaints on social media saying their salary had been withheld for several months.
Calls by the South China Morning Post to Mingbike’s main phone line were not answered. The last post on the company’s Weibo account was in earlier October and its WeChat account has not been updated since November 10.
In response to the latest closure and growing risk of deposit refunds, Chinese authorities have stepped in, with Ministry of Transport spokesman Wu Chungeng saying on Thursday that local governments would play a major role in ensuring protection of consumer rights. He added that regulations for the industry were being drawn up by authorities.
China’s bike-sharing market, overcrowded with more than 40 platforms, have attracted US$2 billion in funding over the last 18 months, making it one of the most popular industries for private equity, venture capitalists and angel investors.
At the top of the heap with a combined market share of 95 per cent are Mobike and Ofo, Beijing-based companies each valued at more than US$1 billion, making them unicorns in a field with many smaller competitors.
“Bike-sharing is an asset-heavy industry. As investors become increasing cautious and reasonable about their bet, a timely merger or acquisition may be the only chance for second-tier players to survive,” said Shi Rui, an analyst with consulting firm iResearch.
Ever since the industry claimed its first casualty in June, smaller bike-sharing companies have been under tremendous financial pressure as riders, uncertain about the future of these second and third-tier players, promptly apply for a refund on their deposit after finishing a ride, sparking the equivalent of a bank run that could mean cash-flow problems for operators.
Chongqing-based Wukong Bike shut down just five months after its launch in January, racking up losses of nearly US$150,000. Other small players operating out of China’s smaller cities have also reported difficulties in securing new funding.
Last week Tianjin-based Bluegogo, the third biggest platform, was facing closure due to a shortage of cash.
“Regardless of how tempting the sharing concept is, it always ends up as a game of oligopoly. The dominant positions held by Mobike and Ofo is unshakeable,” said Shi, adding that a third spot may be the only one left for the other bike-sharing platforms.
Founded last year, Mingbike raised 100 million yuan from venture capital investors and operated in major cities like Shenzhen, Shanghai and Hangzhou.
In August, the company said it would gradually retreat from first-tier cities due to market saturation and restricted parking rules, and instead focus on third, fourth and fifth tier cities.