Fierce competition in bike sharing in China is rationalising the industry..

After explosive growth early on, China's sharing economy has struck a bumpy road as capital flow begins to recede.

As competition bites, so users of some bike-sharing enterprises have found they are unable to recoup the security deposits required for renting the bicycles.

About 1.5 billion yuan (NZ$320m) deposited by users has been lost on platforms for the sharing of bicycles, power banks and vehicles across the country within only a half year, according to a Worker's Daily report on Thursday.

Ai Chenmin, one of the earliest users of bike-sharing company Ofo, told the Worker's Daily that he had been applying for a deposit refund for over 20 working days, but no progress had been made.

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However, Ofo is not the only company that has failed to refund deposits to users. China Consumers Association found 34 out of China's 70 bike-sharing service providers had gone bankrupt. Kuqi Bike, one bankrupted service, received 210,000 complaints alone, and 1 billion yuan ($213m) in deposits could not be refunded to users.

A research report of Guoyuan Securities Co showed that the development of bicycle-sharing services hinged on capital investment. Once the capital flow stops, the users' deposits would be moved to "rob Peter to pay Paul", the report said.

"Shared bikes were a huge convenience for the people when it first started, which drew both users and investment. However, the capital not only stimulated enterprises' enthusiasm for the business, but also intensified competition," said Dou Fan, a partner of a Beijing-based private-equity firm.

Statistics suggest that 190 firms in the sharing economy sector received finance totalling over 116 billion yuan ($27.7 billion) in China last year, covering 11 hot-spot fields such as shared bikes, vehicles and power banks.

Some reports say China's sharing economy topped US$500 billion last year, more than double the scale in 2015. Bikes accounted for a large part of that growth, with the industry exploding to see up to 50 rivals competing for riders.

However, as capital has been pulled away from such businesses this year, the industry is going through intense changes – and many firms have been knocked out.
As an emerging internet business, will the sharing economy bounce back without the capital?

Liu Daizong, director of China Transport Program of World Resources Institute, says the deposit money collected by internet business is a way to prevent vandalism and maintain their running order.

Chen Liteng, assistant analyst at China E-commerce Research Centre, says: "If the sharing start-ups want to develop a long-term perspective, they have to go back to the right business model."

Content sourced from the People's Daily Online here