Bicycle nation: a short overview of cycling evolution in China
There are four phases in bicycle evolution in China: from initial entry and slow growth, in the 1900s to 1978; to rapid growth, 1978 to 1995; to bicycle use reduction, 1995 to 2002; followed by policy diversification, from 2002 to the present.
The bicycle has been developed in China since the 1900s. It has been a mainstay in the nation’s transportation system since the late-1970s due to relatively low incomes, compact urban construction, and short trip distances.
Therefore, until the late 90s, China was a nation of cyclists. Bicycles were such a vital part of everyday life during this period that owning one was a prerequisite for marriage, the way an apartment and a car are for Chinese men nowadays. It was even considered a perfect diplomatic gift, reflecting the characteristics of the nation – the US president George H.W. Bush received a Flying Pigeon bicycle as a gift from Chinese premier Li Peng in 1989, during his visit to China.
It was a period where a massive ‘bicycle army’ rolled through the streets of Beijing every morning like a flowing Great Wall. Katie Melua wasn’t lying in her song, there were indeed approximately 9 million bicycles in Beijing in the 90s – “…that’s a fact.”
Then everything changed. From 1995 to 2002, the government created bicycle-reduction policies in order to encourage the growth of the auto industry and usage of the mass transit infrastructure.
In 1995, the central government declared that the large number of bicycles on the road caused conflicts between motorized and non-motorized vehicles, and that this should be controlled in big cities.
Some local governments also adopted policies to decrease bicycle use. For instance, in 1993, the Transport Master Plan of Guangzhou decreed that Guangzhou would cut the bicycle modal share from 33.8% in 1992 to 13.3% in 2010.
In addition, as Chinese society looked westward for the secrets of economic success and social sophistication, China's post-1980 generation developed a subliminal shame around things intrinsically ‘Chinese’ as well as a huge appetite for consumption.
And just like that, bicycles were out of fashion. After the first 40 years of communist China, when people aspired to own ‘san sheng yi xiang’ (三转一响), or ‘three rounds and sound’ – a wristwatch, bicycle, sewing machine and a radio – a new era dawned. After the start of the 90’s, this Chinese cultural icon came to represent Chinese backwardness.
Not so long ago, when asked if she'd like to go on a romantic bike ride, dating show contestant Ma Nuo caused a massive discussion on Chinese social media with her answer: "I'd rather cry in the back of a BMW than smile on a bicycle."
Driving around with a car, living in a city, becoming rich is undoubtedly glorious. However, these things come with a devastating social and environmental price.
Since dramatic motor vehicle growth has become the norm, resulting in increased energy consumption, traffic congestion, traffic accidents and environmental concerns in Chinese cities, doubts and criticisms against motorized transport have arisen. For example, in Shanghai, the number of traffic accidents rose from 12,634 in 1994 to 23,996 in 1998.
Therefore, after the 2000s the government realized that bicycles were not that evil after all – far from blocking the way for future development, they might form a part of it.
By the end of February 2012, twelve cities in China had formal public bike-sharing programs, with 5331 stations and 180,500 bikes. Under this situation, both the central and local governments began to rethink cycling policies.
For example, docked bike-shares were introduced by municipal governments to alleviate mobility issues in cities such as Beijing, Hangzhou, and Wuhan.
Unfortunately, users found accessing bikes via docking stations to be inconvenient, and the services failed to thrive.
Then in 2014, cycling was in fashion again thanks to the school project of a group of innovative minds in Peking University.
The new wave of bike-sharing
The bicycle rental company Ofo was created in Peking University to help students to cycle around campus (China’s university campuses in general are just huge, you might need to walk 20 to 30 minutes from your department to a canteen or gym or supermarket or dormitory) and Mobike was founded in the following year, 2015.
Both start-ups were capitalizing on the shortcoming of all docked bike-sharing services: that the stations limited access and spontaneity – two essential joys of cycling.
The ‘little red bikes,’ as Mobikes came to be known, soon appeared on the streets of Shanghai, ready to be discovered via a GPS-enabled mobile app. All you had to do was install the app and deposit 299 yuan – about USD 45 – via mobile payment and you were ready to go.
The little yellow Ofo bikes soon followed suit by spreading beyond campuses, eventually joined by around 60 other startups in the bike-sharing market.
At the beginning, all parties involved were happy. It was profitable for mobile payment apps. Alipay, the e-commerce platform Taobao, and WeChat pay became staples of Chinese life even more as the bikes required them to pay for rides. Their daily active users were ever increasing.
Users were definitely happy as they wanted both a cheap way to get across town and the freedom of cycling.
For the government, the bike-share boom was also an opportunity to become a world leader in climate change. It also harkened back to a happier, simpler, and more harmonious time when China was the ‘kingdom of bicycles.’ The government has backed the industry with perks like tax breaks and free office space. In addition, with officials predicting a 40% growth rate, the sharing economy should comprise 10% of China’s GDP by 2020, rising to 20% by 2025.
Mobike’s slogan, ‘Bring bicycles back to the city,’ captured why the program was appealing to local authorities, who at first were willing to give firms a lot of freedom to experiment and grow.
Therefore, dozens of other firms such as Bluegogo and Xiaoming Bike sprung up in just a few years.
What went wrong?
Until a few years ago, everyone was so enthusiastic about the new wave of bike-sharing. Even China’s President Xi Jinping repeatedly hailed the sharing revolution as China’s gift to the world. So, what went wrong?
The first thing that went wrong was that the streets were getting crowded because, though there were more and more bicycles flourishing in every corner of big cities, the cars weren’t going anywhere.
By 2017, in Beijing and Shanghai, where the bikes were most concentrated, there were parts of the city where streets resembled urban obstacle courses made of bikes that citizens had to clamber over and maneuver around.
Trucks were deployed daily to collect improperly parked bikes, and workers to stack bikes neatly. Despite efforts to manage the bikes, they were like a brightly colored rash that increasingly drew the ire of both citizens and local authorities. Both started complaining.
Second, the industry was over-saturated, and it was never clear how these companies were to make profits. According to a report published by Xinhua, each bike costs just over USD 200 to manufacture and USD 10 for each tune up by a technician, and they made a profit of just 1 yuan, about 15 cents, per 2 hour ride, following a deposit of between USD 15 and 45.
The mainstream view – pushed by investors – was that the user data, rather than the service, was the actual product, and that the harvested user data would lead to more targeted advertising. However, these expected long-term returns yielded nothing in the endless interim. There was no short-term return on investment for the companies to stay afloat, and the smaller players began facing bankruptcy.
Between June and November 2017, Kuqi Bikes, Bluegogo, Dingding Bikes, 3Vbikes, and Wukong Bikes all shut down, unable to pay suppliers, maintain operations or return deposits.
Lastly, local authorities began to roll back their initial tolerance by imposing new restrictions and fines. Users found themselves being hit with fines for riding on the sidewalk across cities. In May, the 15th Beijing Municipal People’s Congress imposed fines on bike-share companies for improperly parked units, and more cities soon followed suit.
Current market situation
In the early days of bike-share investment, money poured from a wide range of sources, such as venture capital firm Black Hole Capital and game developer Elex Technology, which both backed Bluegogo, and peer-to-peer investment company Pufa VC (whose CEO backed his son’s bike-share, Dingding Bikes).
Mobike began by raising capital from multiple venture capital firms such as Sequoia Capital, Sinovation Ventures, and Panda Capital, and later Tencent.
Early Ofo investors included Xiaomi and Didi Chuxing, later joined by Hony Capital, Citic Private Equity and Alibaba’s Ant Financial.
However, at the end of the day, only tech giants – Alibaba and Tencent – were left to operate the bike-sharing platforms. Because in the long run, user data acquisition has such strategic value for their ecosystems as they strive to come up with increasingly targeted services and platforms.
In April 2018, Mobike was saved from its financial struggles when it was acquired by Tencent-backed Meituan Dianping. But it operates with a greatly reduced fleet, and much of its overseas expansion has petered out.
Meanwhile, Ofo was suffering dire cash flow problems, struggling to pay suppliers and keeping operations afloat. After a missed opportunity to merge with Mobike and a failed Didi acquisition, Ofo stands on the brink of financial ruin. In 2017, sensing the end of the bike wars, people lined up outside Ofo’s office in Beijing clamoring for their deposits to be returned while the digital queue for withdrawing one’s deposit reached as long as 13 million users.
Despite all the crises in the market, there seems to be a recent winner. Hellobike has raised a total of USD 1.8 billion in funding over 7 rounds. Their latest funding was raised on December 28, 2018 from a Series G round. Primavera Capital and Alibaba’s Ant Financial are their strategic investors.
All in all, the new wave of bike-sharing wasn’t able to bring the ‘Kingdom of bicycles’ back, but it marked yet another social experiment in China’s history. In the beginning everyone was excited because of the environmental benefits and business opportunities the market created. However, at the end of the day, when small business owners exit the market with their pockets full of investors’ money, and when the government pulled back its support, tech giants were there to took over the bike-sharing platforms to benefit from the data collection.