From bikes to cars to even umbrellas, endless possibility and optimism are surrounding China’s sharing economy outlook. For all of 2018, a report by the Sharing Economic Research Center of the State Information Center, a Chinese government policy-making think tank, estimated total transaction volumes reached RMB 2.9 trillion (USD 440 billion), a 41.6% increase from the previous year. The report goes on to suggests that regardless of China’s economic condition, the sharing industry is set to grow at least 30% per annum over the next three years. Even by then, it would remain relatively small to other sectors, including the…
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From bikes to cars to even umbrellas, endless possibility and optimism are surrounding China’s sharing economy outlook. For all of 2018, a report by the Sharing Economic Research Center of the State Information Center, a Chinese government policy-making think tank, estimated total transaction volumes reached RMB 2.9 trillion (USD 440 billion), a 41.6% increase from the previous year. The report goes on to suggests that regardless of China’s economic condition, the sharing industry is set to grow at least 30% per annum over the next three years. Even by then, it would remain relatively small to other sectors, including the country’s retail spending market of USD 5.6 trillion
Supporting the outlook are several key factors. First, China is home to more than 800 million internet users, of which more than 788 million can access the internet via a mobile device, according to the China Internet Information Center. Also helping the trend are economic challenges and changing lifestyles. As rising property values are forcing new homeowners to choose smaller residential quarters, preferences are gradually gravitating towards asset light and minimalism ownership. Lower costs options, greater conveniences, and rising trusts contribute to the pull factor directing more users to share rather than own.
Sharing is not proprietary
As demand for sharing services proliferates, investments will remain volatile. Despite the increase in a transaction last year, ventures into the sharing economy hit RMB 149 billion (USD 22 billion), as 23.2% drop from 2017, due to rationalization on account of fierce competition in ride-sharing. However, the market will remain competitive given the potential size of China’s sharing economy, making investments challenging to navigate.
Because market share dominance matters, investors are flooding the sector, where funds are channeled as subsidies for users. Low barriers to entry will continue to invite new companies to compete and disrupt existing players given the ease to copy a visible business model but also because sharing is not a proprietary technology. When strangers ride together to share the cost of a vehicle traveling along a predetermined route, most would see little difference between this and a public bus.
Regulation is always an overhang
Because technology innovation moves faster than regulation amendments, policymakers worldwide are constantly trying to stay ahead. To China’s credit, Beijing has essentially invited itself on to the boards of national technology companies to exert some influence – a policy whisperer. This ensures that there are some overlapping interests between tech firms and governments, which may not always bode well for investors.
With a greater need to protect customer data and physical safety, policymakers are working towards establishing a best practices general framework. But given that problems still arise, unforeseen compliance and regulation uncertainty adds to expenses.
Following a series of violent incidences, ride-sharing operators in China need to register both car and the driver to authorities, a hindrance for those which need to expand the network for users. Bike sharing companies became a target of criticism when unused bikes were littered across public spaces, forcing new restrictions which elevated costs.
Last thing to consider
It is hard not to argue that the rising technological advancements and internet related services came in part due to few good alternatives being offered. But this could inflate the potential market size, as some of this demand comes from population growth in city living where infrastructure, particularly in transportation, may be insufficient. At this juncture, it is easy to see the growth of China’s sharing economy, but it may not be so generous to investors.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.