China’s freshly sprouted bike-sharing businesses will face a freezing winter. Are they ready to deal with the chill?

Beijing saw its first snow this winter arriving in the middle of November, which also  will likely mark the start of a slowdown for the white hot Chinese bike-sharing business. Though hundreds of millions of dollars in recent fundraising will add more fuel to the fire of the bike-sharing business, many of the newer startups may find it difficult to make it through this winter.

Winter is the traditional slack season for the bike-sharing business. Neither low temperatures nor extreme weather are generally favourable for outdoor activities, these things being especially bad news for eager new players in the sector. This is therefore an opportune time to simmer down and dig deep to explore whether bike-sharing is really a sustainable business in China.

Strong demand from the market

Bike-sharing has been present in the Chinese market for quite a while. Public bike-sharing systems landed in China as early as 2007, prior to the Beijing Olympics. The systems were primarily supported by government funding and operated by state-backed vendors.

The development of the public bike system varies from city to city. Taiyuan and Hangzhou, in place of China’s most developed cities Beijing and Shanghai, currently host the most advanced public bike systems in China. As of June, Taiyuan‘s public bike system has been used 445 million times in the past three years.

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Bike-sharing systems in China specifically cater to the needs of the market by affording the following benefits:

Last mile connections for mega cities: The Bike-sharing system in China is an extension of the public transportation system, primarily made up of urban rail and buses. It covers the last two miles from public transport terminals to city residents’ front doors. The average distance between two subway stations in Beijing and Shanghai is around one to two miles, equivalent to a 20 minute walk. Thus, cycling, when at a low price, becomes a preferred option for residents living in neighbouring areas in-between. In some isolated areas — certain school campuses and industrial parks, where public transportation isn’t available — cycling serves as a major form of transportation. Bike-sharing, to an extent, is a supplement to the current public transport system.

Clean transportation: Pollution, especially heavy smog in winter, has been a recurring issue for China’s developed cities. Beijing alone saw 46 days of heavy pollution in 2015. Considering the environmental issue, the Chinese government is a supporter of green transportation, bike-sharing included. In a guideline co-launched by several Chinese public departments in 2012, walking and cycling were expected to comprise 45 per cent of Chinese city dwellers’ daily transportation needs by 2015.

However, according to a report by Beijing Transportation Research Center, the percentage of residents cycling in comparison to other transportation methods (excluding walking) was only 12.5 per cent in 2015, even less than the 38.5 per cent seen in 2000. To accelerate the transformation to cleaner transportation technologies in populous cities, the bike-sharing business will more than likely need to enjoy strong advocacy from municipal governments.

Innovation provided by new models

Compared with the established public bike system, newly-bud bike-sharing startups have introduced fully independent bikes that don’t require returning to station points, applying mobile technologies to the management of bike-sharing. This has the following three essential new features:

High flexibility: Compared with the public bike system, fully mobile — or GPS-tracked bikes — enable platforms to move away from the restrictions of fixed stations. This not only reduces expenses on bike station construction, but also solves the issue of station density with mobile technology.

Better tracking: Thanks to portable GPS trackers, bikes under the new system are now trackable in real-time. The older system only collected user data when bikes were obtained from or returned to stations. Equipped with mobile tracking systems, data can be collected real-time throughout usage, which enables platforms to better plan for and allocate bikes. Commuting data can also be turned into a valuable asset for platforms.

Diversified financing: According to People’s Daily, the investment in Taiyuan’s public bike system has reached over RMB 300 million (US$43.67 million) cumulatively in the past four years, while income from 2012 to the end of 2015 was only RMB 8.29 million(US$1.2 million). The imbalance between costs and income means public bike sharing is often a burden on public finances, under the current scheme.

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The mobile bike systems used by startups today have greater possibilities for revenue generation, with advertising — both in-app and on bikes — and the potential for location-based services offered in tandem. Innovations derived from mobile technologies and a new private sector with tech startups show greater promise than present publicly-run systems, in terms of future potential revenue opportunities.

Operators

New innovations have contributed to the current booming bike-sharing market in China, with over a dozen new entrants into the field announced in the past couple of months.

ofo and Mobike are now the two leading players in the field, with both companies having raised over US$100 million in recent months. They also happen to hold many distinctions in terms of current operating models.

Another significant new entrant to the field is Youon, one of the largest vendors of the public bike system in China. Youon, along with vendor and bike manufacturer Yongjiu, represent another part of the business: the traditional player. Long-established incumbents have the benefit of years of experience managing public bike systems, with established networks of public bike stations, making them strong competitors in the field.

Challenges arise, and winter has come

Existing demands as well as innovations have yet to prove the vigorous bike-sharing business in China today will be sustainable in the long term. Instead, the usual slow season of winter may see a number of new entrants die down the road. Present operators need to consider the following subsequent challenges.

Comfort versus durability: The biggest complaint levelled at Mobike is that their specially-designed bikes are too heavy. This is attributed to a large power-generating wheel hub, solid rubber tires and sturdy frame. The design of these features are out of a concern for durability, but also at the expense of user experience.

Though Mobike launched an improved version with ‘Lite’ in October, the weight of the new model (at 17 Kilograms), is still heavier than a regular bike and requires users to exert much more effort due to its power generation system.

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Costs and maintenance: Another controversy for the Mobike bicycles are their high manufacturing cost: RMB 2,000 (US$290.44) for the regular version and RMB 600 (US$87.13) for the Lite. This means, with average usage at eight times a day, it will take about a year for a Mobike to recoup production expenses, not to mention maintenance costs.

According to public data, maintenance for a Taiyuan public bike is at about RMB 73 (US$10.60) per year. For Mobike, maintenance expenses will likely be even higher considering the sophistication of their designs. Besides, operational expenses, re-allocation for these bikes also comes at a considerable cost. For now, Mobike charges an extra RMB 100 (US$14.52) when bikes are parked beyond the current operating areas.

An advantage for Mobike is that its bikes are designed with high durability. For other operators using regular bikes, expenses on maintenance and replacement costs for damaged bikes, may possibly prove higher in the long term.

Antisocial behavior: Another headache for bike-sharing platforms is vandalism and theft. Mobike published a post on Weibo in October entitled Mobike is severely wounded and needs your help. In the article, Mobike described how a man threw two Mobikes into the Yangtze river and then smashed another six afterwards.

This is not the only case concerning intentional damage of these bikes. Theft and extended occupancy rates — by locking bikes up with private locks — has also been consistently reported. Moral appeals won’t help. A well-functioning system needs to prevent antisocial behaviours through mechanisms and regulations instead of relying on self-discipline. This is also a socio-economic question to be answered in the development of the bike-sharing network.

Adverse weather: Winter is the low season for bike-sharing, especially in the smoggy Northern area of China. Snow, low temperatures, air pollution, all these climatic factors sharply decrease the frequency of bike usage in winter. This doesn’t mean that winter alone will send operators to the graveyard, but it’ll certainly be challenging for newer entrants in the field to achieve the satisfactory growth that they will need to raise another round of funding and compete in the already over-crowded battlefield. Meanwhile, the rough weather in winter will more than likely lead to a surge in maintenance costs for public bikes already deployed.

China’s freshly sprouted bike-sharing business is facing a freezing winter, and it may not be ready to deal with the chill. For all aspiring new entrants, surviving this winter — rather than profitability — may be more important than any other thing looking towards the end of 2016.

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With contributions from Li Ruichao and editing by Rohan Malhotra. This article first appeared on China Tech Insights, a Tencent News product.

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