Bike provider Xiaoming’s bankruptcy ‘won’t affect sharing economy’ sector

The bankruptcy of Chinese bike-sharing company Xiaoming shows the industry is being reshuffled, but this process won’t have an impact on the overall growth of the domestic sharing economy, experts said.

The Guangzhou Intermediate People’s Court determined on Wednesday that Xiaoming is unable to pay off its debts and could begin bankruptcy proceedings, the first case of bankruptcy in the bike-sharing sector, according to media reports.

Many creditors including users, suppliers and employees were involved in the case, scattered across more than a dozen large and medium-sized cities across the country, Wu Xiaoping, vice head of the Guangzhou Intermediate People’s Court, was quoted as saying in a media report. As of June 27, the users of Xiaoming had filed 118,738 claims and its suppliers had filed 28.

Also, since the majority of its users registered through a mobile app and user data is stored in a cloud server, the court will need to obtain that data to check. The company’s assets are another problem in the case, as most of the assets are shared bikes scattered on the streets of many cities.

After rapid growth in 2017, China’s bike-sharing industry entered the phase of maturity in 2018, industry consultancy firm iiMedia said in a report published in June. The user growth rate in 2017 reached 632.1 percent, but it slowed to 14.6 percent this year.

“Small companies tried to cash in while the shared-bike fever was cooling, so investors should be more rational. These late entrants might take higher risks,” Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times.

Among sharing-economy technology unicorns in China, the most mature ones are in the transport sector, with valuations that often surpass billions of yuan, iiMedia said in the report.

Considering its high production and operation costs, the bike-sharing business is not a sustainable profit-generating model, noted Zhao Xiang, an analyst at Beijing-based research company Analysys. “However, other shared economy businesses like shared vehicles are more promising, as the threshold of profitability is much easier to reach.”