China’s shar­ing econ­omy even cov­ers um­brel­las

There are funds out there for firms that want to rent stuff out – from bas­ket­balls to phone charg­ers and more. Crit­ics ques­tion whether the de­mand is real, say­ing the low-rev­enue model means prof­itabil­ity can be elu­sive,

The National - News - Business - - Analysis - Yawen Chen and Ryan Woo write

Fancy shoot­ing some hoops but don’t have a bas­ket­ball? Caught in the rain with no um­brella? Smart­phone run out of juice? China’s rapidly ex­pand­ing “shar­ing econ­omy”, which al­ready pro­vides car rides and bicycle hire on de­mand, can help.

For just 2 yuan (Dh1.07) an hour, Nate Liu, a stu­dent at the Bei­jing Lan­guage and Cul­ture Univer­sity, rents a bas­ket­ball from a courtside vend­ing ma­chine by scan­ning a bar­code on his smart­phone.

“I didn’t want to ask around and bor­row a ball af­ter los­ing mine, so I de­cided to give it a try,” said Mr Liu.

Far away, in China’s wet­ter south, about 20,000 um­brel­las have been re­leased on to the streets of Shen­zhen, and can be rented – un­locked by an­other smart­phone bar­code scan – for just half a yuan for 30 min­utes.

The um­brel­las can be dropped off “wher­ever con­ve­nient”, al­though users are en­cour­aged to keep them, says Zhao Shup­ing, the founder of E Um­brella Shar­ing, one of a hand­ful of start-ups of­fer­ing the ser­vice.

China’s govern­ment has taken notice, and ex­pects the “shar­ing econ­omy” to grow by about 40 per cent this year to 4.83 tril­lion yuan. By 2020, it should ac­count for about one 10th of GDP, il­lus­trat­ing China’s as­pi­ra­tion to be­come a shar­ing econ­omy leader on a global scale.

Price­wa­ter­house­Coop­ers pre­dicts five shar­ing sec­tors – car shar­ing, travel, fi­nance, staffing and mu­sic and video stream­ing – have the po­ten­tial to in­crease global rev­enue to US$335 bil­lion by 2025 from $15bn to­day.

Most of the money be­hind China’s bal­loon­ing shar­ing econ­omy comes from an­gel investors and ven­ture cap­i­tal firms.

At least 1.69bn yuan in mostly se­ries A, or early stage, fund­ing was in­vested in April-May in more than two dozen start-ups of­fer­ing shar­ing ser­vices, ac­cord­ing to Reuters cal­cu­la­tions based on data from Chi­nese data com­pany IT Juzi.

Twelve com­pa­nies rent­ing out power banks – typ­i­cally com­pact, mo­bile bat­tery charg­ers – se­cured 1.13bn yuan, while newer busi­nesses such as bas­ket­ball and um­brella-shar­ing took in about 25 mil­lion yuan com­bined.

While mo­bile-savvy, con­ve­nience-ob­sessed Chi­nese wel­come the in­no­va­tions, some crit­ics ques­tion whether the de­mand is real or sus­tain­able. They say the low-rev­enue, cap­i­tal-in­ten­sive model means prof­itabil­ity can be elu­sive.

“Young peo­ple are em­brac­ing rent­ing as a way of life in­stead of pos­sess­ing things,” said Emma Zhu, the in­vest­ment direc­tor at Bei­jing-based In­noan­gel fund, who has held off in­vest­ing in any of these start-ups. “But the shar­ing model won’t work in ev­ery sit­u­a­tion. In some cases, they’re try­ing to meet gen­uine de­mand, while in oth­ers they’re not.”

Some investors say the fund­ing frenzy re­calls the spec­tac­u­lar boom and bust of hun­dreds of Chi­nese Groupon-type apps in vogue in 2010-12, not­ing that most ul­ti­mately col­lapsed af­ter fierce price wars, with losses of about $1bn. “In China, the only bar­rier to en­try is who can raise the most cap­i­tal – that’s good and bad,” said Xu Miaocheng, an in­vest­ment man­ager at Unity Ven­tures in Bei­jing.

“The up­side is there are funds avail­able to launch a bunch of com­pa­nies. You may not need a lot of spe­cial­i­sa­tion or new tech­nol­ogy. The down­side is a lot of money could be wasted.”

Cai Min, the founder of bas­ket­ball rental firm Zhulege­qiu, says he wants to ex­pand across the coun­try, and quickly, of­fer­ing the ser­vice at all of China’s es­ti­mated 100,000 bas­ket­ball courts, and grow­ing into a multi­bil­lion yuan busi­ness, even­tu­ally of­fer­ing all “share­able” prod­ucts.

The Zhe­jiang-based start-up re­ceived 10m yuan in early fund­ing from Shang­hai-based Modern Cap­i­tal on May 5, less than two months af­ter Mr Cai came up with the idea.

“We are ex­pand­ing at all cost, be­cause speed is ev­ery­thing,” Mr Cai said in an in­ter­view. “Of course this means costs have been very high at the early stage be­cause we have to make ev­ery­thing in a month.”

He de­clined to give spe­cific fig­ures, but each so­lar-pow­ered bas­ket­ball rental ma­chine – in Bei­jing, Shang­hai, Hangzhou, Tian­jin and Chengdu – costs “a few thou­sand yuan”. “The key to success is to get more money than your com­peti­tors and to ex­pand faster than them,” he said. Even some keen play­ers, though, have their doubts, say­ing balls are only used oc­ca­sion­ally, so the need to rent is mar­ginal.

All shar­ing ser­vices re­quire a one-time de­posit – from 99 yuan for a shared bas­ket­ball – that gives shar­ing com­pa­nies a one­off fi­nan­cial buf­fer that crit­ics say will not be suf­fi­cient in the longer run if prof­its are slow to take off.

The lat­est wave of “shar­ing” entrepreneurs has been largely in­spired by the rapid rise of Chi­nese bike-shar­ing com­pa­nies such as Mo­bike and ofo, which have to­gether raised close to 13bn yuan in a lit­tle over two years, ex­tend­ing their ser­vices to more Chi­nese cities and in­ter­na­tional mar­kets in­clud­ing Lon­don and Sin­ga­pore.

Mr Zhao, of E Um­brella, said he came up with the idea af­ter his three young chil­dren rushed to try out the rental bikes that mush­roomed across Shen­zhen early this year. “I thought: they’re just nor­mal bikes, if this could work, why can’t shared um­brel­las?” he said. He said um­brella and lock man­u­fac­tur­ers are fight­ing for his or­ders, af­ter he patented his coded lock um­brel­las in March, of­fer­ing him pay­ment ex­emp­tion for as long as 30 days.

“My cost for the um­brel­las is ba­si­cally zero right now,” he said, hop­ing to re­lease a “mod­est” 30 mil­lion um­brel­las across south­ern China this year.

He says his busi­ness has al­ready at­tracted in­ter­est from po­ten­tial part­ners, in­clud­ing China Life In­sur­ance Com­pany, which wants to repli­cate the model in mar­kets from Hong Kong to Sin­ga­pore.

Thomas Peter / Reuters

A stu­dent at the Bei­jing Lan­guage and Cul­ture Univer­sity rents a bas­ket­ball by scan­ning a bar code on his phone.

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