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China's booming sharing economy hits a wall

Bike-sharers deprived of deposits while ride-hailers stuck with higher fares

A surplus of bicycles for rent in Guangzhou led the Chinese city to issue two bans on additional bikes.

GUANGZHOU -- China's sharing economy has accelerated like a speeding locomotive, but some wheels appear to be coming off the industry amid broken promises over bikes and a lack of competition involving cars.

Sorry, you can't have your money back

Subscribers to the Xiaoming Bike sharing app began learning to their surprise in the latter half of August that they will be unable to regain their security deposits required for renting the bicycles. The startup behind the service, Guangzhou Yueqi Information Technology, issued apologies over social networking sites but could not contain the users' anger.

The company's chief later blamed the problem on a technical glitch at a contractor, but this only inflamed the critics further.

Several Chinese bike-sharing outfits including Xiaoming have failed to reimburse deposits, a problem that went viral last month. Rivals battered by the fierce competition began dropping out, leading to a flood of people demanding their money back.

The Beijing operator of the Coolqi bike-sharing platform said it cannot issue repayments because the number of requests has overwhelmed its systems. The deposit of 298 yuan ($45) needed to rent one of Coolqi's 1 million bikes suggests that the business holds tens of millions of dollars in deposits alone.

Many users suspect more sinister motives. "These companies get into the bike-sharing game to collect security deposits for fund management," a Guangdong Province woman said.

Bike piles

China's sharing economy topped $500 billion last year, more than double the scale in 2015. Bikes accounted for a large part of that growth, with the industry exploding since last fall to where 50 rivals now compete for riders.

On top of the deposit, customers pay around 0.5 yuan for every half-hour of use. Over 100 million Chinese use the service, which spans 15 million rent-a-bikes.

But to undercut the competition, bike-sharing firms have saturated the market. Piles of bicycles often sit unused on city streets. In response, Chinese authorities banned the addition of new rental bikes in Shanghai, Guangzhou and Shenzhen starting in August.

That failed to stop Mobike, Ofo and other major bike-sharers from supplying more of the two-wheelers, leading to an eyebrow-raising second ban Tuesday in Guangzhou.

Chinese Car-tel

Even the ride-sharing economy is experiencing a shake-up -- and not in a good way. It was just a year ago that Didi Chuxing, China's answer to Uber Technologies, purchased the mainland operations of its U.S. counterpart. That guaranteed a virtual monopoly in favor of Didi, and fares jumped 20-30%. Some Chinese consumers grumble that the fleet of vehicles also has been reduced.

As for why China would let Didi's acquisition go through, officials at the Ministry of Commerce -- the antitrust watchdog -- would say only that they are still reviewing the deal.

Nationalism may have played a role in the oversight. "It's plainly obvious that authorities believe that antitrust laws will be no issue if they are able to get rid of a foreign company and give a leg up to a domestic firm," an insider said.

Meanwhile, China's leadership is busy reminding the business community which master the sharing economy actually serves. A prominently placed piece in the People's Daily, the Communist Party organ, implores companies not to use the phrase "sharing economy" as simply a selling point. The commentary, published in mid-August, warns of competition among capital taking precedence over quality of services.

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