China’s Sharing Economy: What Is Going On?
As a member of China’s National Sharing Economy Committee, I have been interviewed many times about the topic. So much so, in fact, that in light of recent news touting its explosive growth, its gimmicks and ongoing question marks, it’s time I gave my own first-hand account. My hope is to put a global lens on China, highlighting both what is unique to the country and what is common around the world.
First, some context: I have been tracking the sharing economy in China for several years. Prior to 2015, this was difficult to do unless you spoke (or at least read) Mandarin. It was safe to assume that a fledgling digital sharing economy was underway, but nearly impossible to learn anything about it from the outside. What we did know, however, was that bikesharing had always been big in China. Indeed, when we would map the world’s largest bikesharing programs — such as Montreal, London, Paris and New York City — when we included China (based on unofficial data), the largest 20 programs where there. Western countries didn’t even make the cut.
In the fall of 2015, the sharing economy winds began to blow. Most importantly, the Chinese government declared the sharing economy to be a “national priority” in its Thirteenth Five-Year Plan. The significance of this should not be understated. When an issue or theme gains status as a national priority, it’s as though a light switch is turned on: resources are mobilizes, the government invests, and media goes wild. Based on China’s unique political economy, the government can move mountains that would be essentially impossible almost anywhere else. Further, this can happen overnight.
Against this backdrop, in spring 2016 I was invited to serve on the country’s new National Sharing Economy Committee. This in itself is unique: while a handful of cities have informal advisory boards (some of which I have joined), it is extremely rare for a national government to invest in such a body. Of course this is an honor, and of course I accepted. There are only a few non-Chinese members; the majority are Chinese officials and academics, supported by the private sector.
One of the government’s early actions that made headlines was to declare that it believes the sharing economy will comprise 10% of China’s GDP by 2020. To put this in context, no other city or country in the world has come even close to making such a bold statement. For someone in my position — advising sharing economy startups and policy makers around the world — this was extremely exciting. I began to reference it in my public speeches and encourage other places to take notice. I did not, however, expect for things to evolve quite as they have.
Definitions and homework
There is little question that the sharing economy as defined locally has experienced explosive growth. There is also little question about the government’s commitment to reach its 10% GDP goal. But how this is happening gives pause for concern.
First, around the world debates rage about the definition of the sharing economy. We hear many terms: collaborative economy, access economy, rental economy, peer economy, on-demand economy and so on. None of these terms is perfect, yet they are all partially valid. The general focus is on the sharing (or accessing) of underutilized assets, via decentralized networks and (ideally) with a focus on building community. To be sure, not all platforms get it right — and there is very real risk of “sharewashing” worldwide — but this is the basic premise.
In China, however, the definition has become so broad as to make it almost meaningless. This goes beyond differences in translation. In China, for example, the equivalent of Amazon and Netflix would be deemed part of the sharing economy. In the United States, these platforms would be deemed part of the digital economy, and innovative ways of purchasing products or delivering services, but they would not be considered part of the sharing economy. Earlier this month a “sharing economy for gyms” was announced, but as far as I can tell the concept is simply treadmills in tiny pods; there is no sharing, no underutilization, no community. The pressure to meet government-set targets seems to be having awkward and inaccurate effects. Call it access economy if you’d like; but please, do not call it sharing.
This tendency would not be so problematic if the risks were not so great. China is the world’s largest market; what happens there will eventually ripple elsewhere. This includes both benefits and downsides. If the sharing economy term itself becomes corrupted, this will create collateral damage both inside and beyond China. The global sharing economy cannot afford such an outcome.
Second, in their zest to embrace the sharing economy, entrepreneurs in China appear to be jumping on the access-over-ownership bandwagon without doing much-needed and important homework first. True, there is massive untapped potential — I would call this the “tip of the iceberg” phase — but it does not materialize automatically, nor does simply calling a new business model sharing guarantee success.
Building a successful two-sided marketplace is not easy. It requires cultivating and balancing both supply and demand; too much of one without the other, and you’ve lost your niche. (The Chinese shared basketball platform Zhulegeqiu is a great example; how many people want to play basketball at the same time, really?) Moreover, it requires setting the right incentives for people to participate and follow through on their actions. This is often some combination of economic and social nudges: for example, saving money, being part of a community, or ensuring you are granted continued access to a desired asset.
The recent case of the Chinese umbrella-sharing platform Molisan is enlightening. Shortly after launch, more than 300,000 umbrellas were stolen or simply went lost. When I heard this, I was not at all surprised. Sharing economy business models work best at the nexus of purchase price and frequency of use: assets that are high-priced and infrequently used are in the sweet spot of success. In this case, umbrellas were inexpensive enough and used often enough that there was insufficient incentive to return them. Moreover, there was no social stigma for not doing so, because the Molisan team had not built community ties into the platform.
To be sure, entrepreneurs worldwide must face these issues and do their homework both before and after launch. The same is true for investors: they must do their due diligence and make reasoned calculations of growth, value and returns. What we see in China, however, is a pervasive rush to launch, coupled with a lemming effect in a market of over one billion people. Deeply understanding the complex dynamics of how these new business models work often appears to be an afterthought. Again, these trends would not be so worrisome if there were not so much at stake.
Looking ahead: moderation and balance
In short, there is enormous potential for the sharing economy in China. But with its current dynamics, entrepreneurs, investors and the government risk getting ahead of themselves.
Rather than focusing on hockey-stick returns, speed, and meeting government-set metrics, the private and public sectors in China should build towards a sustainable, community-driven sharing economy for the long-term. It’s time to hone definitions, invest in better understanding platform dynamics, and manage expectations. In particular, the government should keep its enthusiasm — which is incredibly inspiring — and harness it to go beyond a transactional sharing economy towards a truly transformational one. China’s future, and the world, will thank you.