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As bike sharing takes hold, questions keep spinning over operators’ finances
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THERE have been a string of negative media reports recently about China’s popular new bike-sharing services.
For example, bikes are illegally parked; some are willfully vandalized; and there are egregious cases in which bikes are literally “privatized” with original locks being removed and replaced with new ones.
Public opinion has firmly sided with the operators of these bike rental services, with many heaping criticism on selfish users for their lack of public spiritedness.
While these criticisms have consumed much of the public discussion about the pros and cons of these bike-sharing services, an important question has increasingly commanded the attention of users, public observers and potentially regulators: how do bike-sharing companies make use of the deposits paid to access their services?
Typically, users of the bikes provided by Mobike or Ofo have to first pay a deposit — 299 yuan (US$43) for Mobike and 99 yuan (US$14) for Ofo — before they can unlock them.
Few are surprised by the requirement of a deposit for these services, as paying a deposit for certain goods and services is now taken for granted in daily life.
Therefore, that bike-sharing companies try to indemnify themselves against losses resulting from property damage, vandalism and theft seems to be a fairly understandable practice.
The problem is, even in the event of damage to their bikes, it is almost impossible to identify the culprit liable for compensation.
Besides, an even more important issue with bike-sharing is that contrary to the “instant deposit refund” promised to them, users of these shared bikes, especially those owned by Mobike, will at times have to wait two to seven work days to get their money back.
As a result, quite a few users have lodged complaints against the operator, which replied that the delay may have been caused by bank transfer.
It has also been reported that phone calls to Mobike’s hotline for matters pertinent to deposit refunds have often gone unanswered.
Considering that active users of Mobike have reportedly topped 3 million nationwide, and each of them pays about 300 yuan in deposit money, Mobike now has a staggering amount of money at its disposal given its 6.9 million users.
Where that money has gone is now a topic of much intrigue.
Although Mobike and other bike-sharing companies raised several billions of yuan from the capital market, the low price charged for each trip makes us wonder how they can reap enough benefits to pay back the venture capital funding, or even cover their operational costs.
Mobike and Ofo rent their bikes for one yuan per hour, and 0.5 yuan for half an hour. These low prices have helped promote bikes as a widely affordable and stylish means of transport, but it doesn’t take a rocket scientist to see that what little money comes from this bike rental is far from enough to sustain the company’s operation and expansion.
The first generation of Mobikes each cost roughly 6,000 yuan to build, but later the costs were halved thanks to mass production and economy of scale. Then came the second generation Mobike model, called Mobike Lite, which weighs less but still reportedly costs 1,000 yuan to build.
A myth
The huge costs and low profit margins have led a growing number of observers to question the business logic behind bike rental. Many are concerned whether the deposits are used to finance the company’s expansion or to invest in banks’ financial products.
In response to these speculations, a Mobike spokesperson said the deposits are now under the management of China Merchants Bank, and can be redeemed at any moment, with no risk of embezzlement to speak of.
Based on even the current fixed annual savings rate of 0.35 percent, it is indeed a large sum of money. We can only conjecture if this money will be spent on more lucrative financial products, which promise around 4 percent in annual interest returns.
In February, the national broadcaster CCTV ran a special report about Mobike deposits, and said that hundreds of millions of yuan are being left unregulated, and by extension, without protection.
So the important question to ask is whether Mobike has the capacity to deal with a crisis where a massive number of users demand to redeem their deposits. If not, who will be responsible for the asset security of millions of small-time “depositors”
As the market leader, Mobike has many halos. It was instrumental in reincorporating bikes into our urban public transport system. As one of the best illustrations of the much-touted sharing economy, how it fares will attest to the strength of the spirit of sharing among Chinese citizens.
As a Mobike user myself, I certainly cherish the contribution the company has made to promoting a healthy, low-carbon lifestyle. However, serious questions about the deposits and how they are used ought to be answered to reassure the public that their trust is not misplaced.
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