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Overgrown bike-share business shows China economy still vibrant

Government struggles to impose order on more than 16m bikes

TOKYO -- The swarm of rental cycles clogging China's sidewalks are as much a sign of vitality as an administrative headache, showing the entrepreneurial spirit is alive and well in the world's second-biggest economy.

Borrowing one of the bicycles strewn across China's cities is as easy as signing into a smartphone app: a touch of the screen and the bike is unlocked and ready to ride. At the final destination, simply lock up and walk away -- payment is made automatically.

These quick-and-easy rentals exploded in 2016, drawing nearly 70 companies and bringing more than 16 million bicycles onto the streets. The business model proved a perfect fit for the Chinese market, where a massive population provides a built-in advantage. More than 130 million people are registered for a bike-rental service.

China's regulatory apparatus was not prepared for the bike-share boom. The number of bikes in circulation quickly dwarfed the capacity of parking locations, and riders unable to find a spot took to leaving them in massive clusters along the side of the road, often blocking traffic. There has also been trouble with the services themselves: Some users that have closed their accounts complain they were not given back their safety deposits, while others have absconded with borrowed bikes.

Regional governments are now playing catch-up to rein in the runaway business. Beijing, for example, has decided to impose a temporary ban on adding new shared bikes to the pool. Operators must install high-precision tracking devices on their bikes and show on their apps where parking is not allowed. Places where parking could pose a danger to pedestrians and sites such as fire lanes may not be designated as parking areas, the government has said.

Sign of strength

This pattern should be familiar to anyone with an eye on China: When a business opportunity pops up, companies and investors rush into the field, throwing that portion of the economy out of balance. The real estate sector has experienced this time and again, sending the market swinging back and forth between boom and bust. In the steel industry, overinvestment has led to excessive production capacity, unleashing a flood of cheap steel exports that has swamped the global market.

But on closer inspection, the bike-share boom may be a different animal. "Up to now, we've seen overinvestment drive businesses into unprofitability, turning them into zombies" that would not survive without state protection, explained Xiao Minjie, senior economist at SMBC Nikko Securities. "In the bike-share business, companies that can't compete simply close up shop," Xiao said. This is normal in economies dominated by the private sector -- and a sign that the free market is gaining sway in China.

It is also a sign of the country's economic vitality. "China's people are hungry for business ideas," Xiao said. This is why investment tends to cluster around new opportunities: Entrepreneurs are willing to take a chance on businesses such as bike sharing, knowing full well that they could be knocked out of the market by competition. Some have been already. But new entrants deserve recognition for their entrepreneurial spirit, rather than condemnation for their perceived recklessness.

Whereas countries such as Japan look to create new opportunities by cutting regulation, China faces the opposite challenge of overseeing sectors that emerge on their own. The goal is not a regulatory crackdown, but to put in place rules of the road that will let companies develop in a healthy and orderly fashion. A lively entrepreneurial culture would be a critical cushion as China's economic growth slows, ensuring a smooth ride into the next phase of development.

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