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Sharing Economy

Didi ride-share halt threatens to cool China's sharing economy

Passenger killings add to strain on $780bn sector as bike-shares also struggle

Didi Chuxing, China's biggest ride-hailing service, has been key to the growth of the country's sharing economy.

BEIJING -- The suspension of ride-sharing by Chinese leader Didi Chuxing over the killings of passengers, plus a crippling race to the bottom among bicycle-sharing startups, have raised concerns over whether the country's sharing economy can sustain its rapid growth.

Didi's CEO and founder Will Cheng Wei and President Jean Liu Qing said in a joint statement on Aug. 28 that its Hitch carpooling service would be suspended indefinitely. The executives expressed dismay that two tragedies involving Hitch had taken place in just three months, adding that they accepted responsibility and apologizing to the victims and their families.

According to Chinese media, a male driver registered with the service killed a young female passenger on Aug. 24 in the eastern province of Zhejiang. The day before the incident, Didi reportedly received a complaint saying the same driver had taken another passenger to a suspicious place and otherwise behaved inappropriately, but the company did not address the matter. It was already facing widespread criticism of its safety measures after the death of another Hitch passenger in May.

Didi will prioritize safety rather than scale as a yardstick, and devote management resources to safety and customer service, Cheng and Liu said. Among the proposed changes is working more closely with the police, such as by having complaints from customers contacting Didi about safety and other matters conveyed simultaneously to the police.

Founded in 2012, Didi merged three years later with a rival linked to online mall operator Alibaba Group Holding, and in 2016 acquired the Chinese operations of U.S. ride-hailing app Uber Technologies. It now all but dominates the Chinese market, with 550 million users, 30 million registered drivers and 30 million rides per day. The company's value is seen at around $56 billion, according to local media.

Though Didi continues to offer other services, including letting drivers give rides in personal vehicles, the incident has raised concerns over the rapid growth in China's sharing economy -- which grew 40% year-on-year to about 5.35 trillion yuan ($784 billion) in 2017, according to Chinese research firm AskCI. Didi has been a key driver of that expansion.

Bike-sharing services, a major feature of China's sharing economy, are also struggling. Fierce price competition is causing profits to fall below expectations, and abandoned bikes cluttering city streets have become a social issue. Some companies have been unable to pay back users' deposits, and a number have fallen into insolvency.

One leading company, Mobike -- backed by Tencent Holdings, the web giant behind messaging app WeChat -- is believed to have been in a funding squeeze, which led to its acquisition in April by Meituan Dianping, a provider of home food delivery and restaurant search services that also lists Tencent as an investor. Rival brand Ofo -- backed by Alibaba -- is also seen to be experiencing operational difficulties.

The Chinese government's support of high-tech fields like artificial intelligence and big data analysis has helped AI-based sharing services proliferate, in office and medical-care settings as well as public transit. The country's sharing economy is expected to grow to around 7 trillion yuan in 2018, and many expect it to maintain a growth pace of 30% or higher for the time being.

But concerns over competition also dog the sector. "The impediment of healthy market competition is one factor that kept this murder from being prevented," an executive at one overseas-based investment firm said with regard to the Hitch incident.

Although China has relaxed restrictions on fields like automobiles and finance under President Xi Jinping, state-owned companies supervised by the government or the ruling Communist Party are a major presence in the domestic economy. The party and state place especially strict rules on fields seen as significant to security and public safety, such as energy, communications and internet-related services.

Areas considered part of the sharing economy have largely grown up around advanced technologies developed by private-sector companies, but Chinese authorities appear to be steering the sector toward an oligopoly to make it easier to supervise, as well as taking steps to exert authority over major companies. That has created a tendency for companies to "focus on pleasing authorities, rather than competing on services for customers, in order to beat their rivals," in the words of one internet industry analyst.

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