Bluegogo's failure 'calls for tougher rules'

Updated 2017-11-20 10:33:12

Bluegogo's failure 'calls for tougher rules' on bike-sharing, authorities must address risks

The failure of several Chinese bike-sharing companies reflects problems in the fast-growing sharing economy, and more regulations are needed to curb irrational practices in the market, experts warned on Sunday.

The bike-sharing sector in the country has been boosted mainly by venture capital, and the troubles of Bluegogo - the latest to fail -were caused by a lack of funds and tightened regulation of the sector since earlier this year, Shi Rui, an industry expert from the Beijing-based market consultancy iResearch, told the Global Times on Saturday.

Li Gang, founder of Bluegogo, apologized in an open letter published on Thursday. He said that he had made errors and he apologized to the company's users, investors and suppliers.

Many users have been complaining on social media platforms that it is very difficult to get their deposits back from the troubled company. Its major partner, Ant Financial Services Group - the financial services arm of Internet giant Alibaba - has screened Bluegogo out of its platform.

In March, Bluegogo teamed up with Zhima Credit, a subsidiary of Ant Financial, to provide deposit-free services to users with credit scores above 700. "The company will initiate a new deposit-free model with the help of a social credit-scoring system," the company said in a statement sent to the Global Times on March 22.

However, several months later, some users who have been struggling to get their deposits back have seen few benefits from this so-called model.

"A shared bike is often used several times a day and each time it requires hundreds of yuan as a deposit. By the end of the day, this has generated a huge capital pool, which can be used for many other purposes such as investment in the stock market or property," Qiu Baochang, a legal consultant of the China Consumers' Association, told the Global Times on Sunday. "Without supervision, consumers' deposits might be put at risk," he said.

Several bike-sharing providers have encountered operational difficulties since the start of this year.

In June, Chongqing-based Wukong Bike and Beijing-based 3Vbike said they would shut down. Three months later, users queued at the headquarters of Beijing-based Coolqi to seek a refund of their deposits.

"The authorities should adopt a more cautious attitude toward bike-sharing businesses. Companies should come up with detailed deposit management plans before putting bikes into the streets," Qiu said, noting that deposit refunds should not be delayed.

The Ministry of Transport, along with other authorities including the People's Bank of China (PBC) and the National Reform and Development Commission, held a meeting from November 6 to 8 in Chengdu, Southwest China's Sichuan Province, to elaborate a series of issues involved with bike-sharing, the Beijing News reported on Sunday. One major move could be drafting regulations on deposit management.

The PBC, China's central bank, had not responded to faxed questions from the Global Times as of press time on Sunday.

Other bike-sharing providers have put users' deposits into escrow accounts at commercial banks. For example, Mobike arranged with China Merchants Bank in February to cooperate in deposit supervision, account settlement and other financial services, the company said in a statement sent to the Global Times on Saturday.

"Regulations are definitely needed now, not just to control the number of shared bikes on the street but also to ensure the safety of the bikes and deposits," Qiu said.

The lawyer noted that it will cost users a lot to go through legal procedures for deposit refunds. "If a bike-sharing firm goes bankrupt, it might not be possible to get their money back," he said.

Authorities must change their "wait-and-see" attitude, Shi noted. Some policies in China lag behind the growth of new sectors, which creates scope for some companies to speculate on that growth. "For the government, it's time to weigh in," she said.

Bluegogo's failure will have an impact on the shared bike business and force the industry to focus on rational growth, the analyst noted.

"Since Wukong Bike went bankrupt in June, some bike-sharing providers have encountered turnover and financial issues, and for second- and third-tier players, it might be time to find a buyer among first-tier players," Shi said.

Mobike and ofo constitute the first-tier group, with monthly unique devices of more than 30 million in the second quarter of 2017, leading the industry, iResearch said in a report released in September. The second-tier group included Coolqi and Hellobike as well as Bluegogo.

"If only one survives, it may raise concerns over pricing monopoly. So it's highly possible that three companies will be left at the end of this game," Shi said.

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