HONG KONG -- Flexible office operator WeWork will give up majority control of its Chinese joint venture, an about-face in a country that was expected to be one of its most important markets.
WeWork's local partner will invest an additional $200 million in the joint venture as part of the deal. The investment will give Trustbridge Partners, a Shanghai-based investment firm, a majority stake in WeWork China, while the U.S. parent will retain a minority stake.
"The partnership will provide our local leaders with more autonomy and empowerment to address the local market's needs," a WeWork spokesperson said in a written reply to questions from the Nikkei Asian Review.
"WeWork China will continue to work closely with WeWork global," the spokesperson said. "WeWork will continue to help ensure consistency across WeWork's brand, spaces and service quality, as well as member experience globally."
Trustbridge Partners said in a statement that it had appointed Michael Jiang, its operating partner and an internet industry veteran, as WeWork China's acting CEO.
WeWork manages more than 100 locations in 12 Chinese cities through a joint venture in which it held a 59% stake as of last year. Trustbridge Partners became a shareholder in WeWork China in 2018 after participating in its $500 million funding round along with SoftBank Group, Chinese investment firm Hony Capital and Singapore sovereign wealth fund Temasek Holdings.
China was mentioned in WeWork parent We Company's initial public offering prospectus 173 times, underscoring the significance of the world's largest market. It has been a growth center for WeWork, accounting for 15% of worldwide locations for the company. The greater China region brought in $99.53 million in revenue in 2018, putting it third behind the U.S. and the U.K., according to the prospectus.
Despite WeWork's fast growth in China since it opened its first center in Shanghai in 2016, the New York-based company is facing a stiff challenge from Chinese rivals, including Ucommune, as well as its own internal problems.
The parent company's valuation plummeted last year following the canceled IPO and the ouster of founder Adam Neumann as chief executive. The company has since announced a number of aggressive cost-cutting measures, including laying off thousands of employees and surrendering some of its coworking spaces.
Its China expansion plan has been affected, too.
Nikkei reported last October that WeWork put its expansion plans for 2021 in China on hold. But as companies explore ways for employees to avoid infection during the coronavirus pandemic and look to save money in Asia, WeWork said it has seen a surge in inquiries from businesses for flexible office space. Companies with more than 500 employees now make up 40% of its membership, compared with 30% a year ago, the company said.
"Having watched the execution of WeWork in greater China over the past few years, and the growing need for flexibility accelerated by the pandemic, Trustbridge firmly believes the demand that WeWork provides (space for) will only continue to increase," said Feng Ge, managing partner at Trustbridge Partners.
Jiang, WeWork China's new acting CEO, was a senior vice president at Meituan-Dianping, China's largest e-commerce platform for the service sector, before joining Trustbridge Partners, an early investor in Meituan. Jiang also worked at Tencent Holdings and Yahoo.