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Bikesharing in China could use more structure, and that could help cities like Beijing meet their air quality goals, which is key for tourism. Racing to the bottom on price can't be the main priority.

During its first six months of existence, Bluegogo, China’s third-largest bike-sharing firm, dumped 600,000 bicycles into Chinese cities. Twenty million people signed up to use them; investors showered the company with $58 million in funds. But with rental rates as low as $0.07 per half-hour, Bluegogo’s days were numbered and last week the company folded. In an apologetic letter, its CEO conceded that he had been “filled with arrogance.”

He’s not the only one. In the space of 18 months, dockless bike-sharing has become one of the hottest investment trends in China, with the two biggest players each having raised over $1 billion in venture funds, respectively. That money has funded a revolution on the traffic-choked streets of Chinese cities, giving urbanites a low-cost, carbon-free means to get around quickly. What it hasn’t produced is a viable business model. A little over a year into China’s bike-sharing boom, the industry’s future looks precarious.

Barely two years ago, the idea that bicycles would return to China’s cities in a significant way would have seemed absurd. Bicycle commuting, commonplace in large Chinese cities as recently as the late 1990s, was viewed as pre-modern, down-market and a nuisance. Cities had been redesigned to facilitate automobiles, not bikes or pedestrians. For those who couldn’t or wouldn’t buy a car, China embarked on the biggest mass transit build-out in history.

Yet even cities like Shanghai with excellent public transportation faced a knotty problem: the “last mile” issue. Most people are willing to walk less than a mile to a train or bus (in the U.S., it’s a quarter mile). Otherwise they’ll resort to another form of transportation, usually motorized. The problem has long resisted simple solutions, especially in China, where air pollution leaves people even less eager to stroll around outside.

Traditional bike-sharing, in which users rent a bike from a station or rack (preferably close to a transit stop) and return it to another one (preferably close to home), are a favorite last-mile solution in parts of the U.S. and Europe. With government support, they even bloomed in a few parts of China in the late 2000s. As recently as 2016, Hangzhou was home to the world’s biggest bike-sharing network, with 3,572 stations, 84,100 bikes and an average of 310,000 users per day.

As successful as that may sound, at least one study showed that many commuters weren’t using the bikes because they couldn’t access a station conveniently. Dockless bike-sharing seemed like the answer. Bikes are enabled with GPS and users locate and rent them via an app. When they’re done riding, users simply leave them to be found by another renter.

The concept works best when there are lots of bikes lying around for customers to access. China’s bike-sharing companies did not disappoint. As of August, there were 1.5 million shared bikes available in Shanghai alone and Chinese were taking millions of rides per day. Mountains of shared bikes piled up outside subway stations in China’s biggest cities.

The system has obvious benefits, including reduced carbon emissions, greater transit use and increased levels of exercise. It has equally obvious problems. First, the massive numbers of bikes necessary to make the model work have become a public nuisance, clogging sidewalks, roads and doorways, and forcing governments across China to cap their growth. Second, nobody has managed to make any money renting out $400 bikes for pennies per hour while flooding cities with even more. Bluegogo’s collapse won’t be the last; China is home to dozens of smaller bike-shares, each of which faces the same issues.

For now, China’s two dominant bike-sharing companies — Ofo and Mobike — remain afloat, supported by some of the world’s biggest and most generous funders. But the pressure to generate cash is growing and as recently as October they were in talks to merge. That would give the Chinese government something it prefers: a single entity to regulate, rather than a swarm of startups. At the same time, it’d probably come at the expense of smaller cities, which are unlikely to benefit from the economies of scale — and higher prices — possible in places like Shanghai.

China’s local governments need to step in. Viewed properly, bike-shares have become a critical piece of any well-designed mass transit system — and one that China needs to maintain if it wants to meet its livability and environmental goals. If the economics don’t support private players, cities should either start their own bike shares or take over and run failing networks. Free markets gave rise to China’s bike-sharing revolution. A bit of socialism, though, may be needed to save it.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Adam Minter is a Bloomberg View columnist. He is the author of “Junkyard Planet: Travels in the Billion-Dollar Trash Trade.”

©2017 Bloomberg L.P.

This article was written by Adam Minter from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to [email protected].

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Tags: china, sharing economy

Photo credit: During its first six months of existence, Bluegogo, China's third-largest bikesharing firm, dumped 600,000 bicycles into Chinese cities. Qilai Shen / Bloomberg