Bike sharing in China — where did it go wrong?

What the circular economy can tell us about fast-growing sharing startups

You’ve probably seen the images of a mountain of perfectly useful, repairable, nearly new bicycles created in just one city in China. How did this happen?

This mountain is not the end point of some amnesty for consumers. It isn’t caused by people who were swayed by advertising and bought an extra bicycle or three and now might be having second thoughts, like those who buy puppies at Christmas. It’s not about people going out and buying things they didn’t need. This bicycle mountain is the fallout of a collapsed sharing economy business model.

Photo by Xing Wang on Unsplash

More precisely, the bicycle mountain includes thousands of bicycles from sharing startups that have been growing fast, with the yellow bikes courtesy of Ofo, and the silver ones from Mobike. It’s perhaps a surprising sight considering these companies are both less than four years old. But some bike sharing firms are lasting considerably less time than that. The smaller player Wukong Bicycle went bust in June 2017, after just five months in operation. When it finally shuttered, 90% of the bikes had been lost or stolen. On the face of it of course, bike sharing is a good thing, providing greater access to a healthy, affordable and convenient form of transport. To reap the benefits in the long term, however, we’ll need to understand the wider system. After all, context matters.

The business model in question is familiar today. It can be summarised as ‘growth before profits’. The digital era rewards those with ‘network effects’: those with a very large, then dominant number of users in a particular market. It not only lowers costs, but it increases the data flow from users. This data then adds value, further refining the market and also being sold on to advertisers or other firms looking to find out potential flows of customers in a city and so on. Ultimately, the price of using the service can rise, but to do this the firm’s effort has to go into being the near monopoly as soon as possible, hence the very large investment flows often coming in through venture capital.

One difference is that a sharing economy model usually means that the goods made available, the bicycles in this case, are retained by the firm. In cases where the goods are already existing and utilisation is being increased (think AirBnB), the assets are retained by the owner. In both cases, the owner can decide how to best keep the products and materials in circulation, be it through re-use, repair, refurbishing or recycling. These business models are not, in short, a take-make-dispose proposition and yet, they have become just that in this example.

The circular economy always prompts the question ‘What’s next?’ or as Gene Bellinger, the systems expert says, ‘And?’

If it’s just about the stocks, flows and feedback of materials and resources, then the bicycle mountain ought to have a happy ending, and perhaps it will. But the sheer scale of the operation depicted in the image suggests that instead of selling or giving away those bicycles to anyone who needs one, the temptation must be to sell for scrap, thereby losing the embedded value almost completely. Maybe that was the idea all along. It might be argued that the point of this type of bike sharing was convenience, and not having to store, maintain or protect the product. With their digital and physical locks, can the bicycles even be unlocked for use, now some of the original owners have gone bust? Is there even a sufficient market for all these bikes?

Whatever the fate, this is not an example of a circular economy, it’s just one iteration of a sharing economy; one which places resource issues way down the agenda. It creates new products rather than increasing the utilisation of existing assets. It is short term, based on a wholly inadequate set of system conditions which, in a familiar way, exports the costs to society and the environment. It does not give purpose to the digital revolution, and being based on a desire to establish a monopoly, seems to be engineered to extract and not circulate value. Even conventional economic thinking, the kind found in textbooks, warns against monopolies as examples of economic inefficiency.

Charitably, this collapse of business might just be part of the learning process by which a sharing and circular economy comes into focus. The destruction might be labelled, “creative” just another turn of the innovation cycle. But structurally, there seem to be themes here which are deeper and more worrying.

The circular economy looks to overcome “scale and sale”, by allowing goods to be highly utilised and recoverable at high value, which means fewer of them need to be manufactured. Couple this with making access and use preferable to ownership, and you have a potentially profound reorientation of the economy, one suited to some of the challenges of the time, including climate change, intensifying urbanisation and lacklustre economic growth. As Carlota Perez notes when comparing the historical record around previous periods of techno-economic foment, it is always the role of governance, which comes into play in the latter part of any industrial revolution, that brings a semblance of a ‘golden age’. In this context it means, she says, enabling the benefits of technological change to be widely shared. Historically, this has always been a deliberate act.

This might mean redesigning, or at least ‘tilting’ the playing field to make that happen. In the sorry example above it could be as simple (or complex!) as ensuring these products are, by design, unlockable and reusable. It could be about safeguarding the value in them through deposit schemes at municipality level, which could enable them to become part of an accessible temporary materials bank further down the line, clear of legal difficulties around ownership. How they are made, how to repair them and their bill of materials could be part of a clearly accessible information package. Perhaps the idea of dockless, as opposed to docked bicycles might need to be abandoned altogether. Context matters, for every innovation. It means designing systems to work effectively, not just efficiently.