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China to become test bed for sharing economy innovation

05/24/2017| 4:03:40 PM|

Homegrown ride-sharing and home-sharing companies emerged in China early this decade, shortly after Uber and Airbnb launched in the U.S. The industry has boomed ever since.

It’s been an excellent few months for startups in China’s sharing economy. Perhaps too good. The bike-sharing industry landed its first unicorn, and companies that allow phone users to share battery packs have raised at least USD 150 million in recent weeks.

But at the same time, one startup recently announced that it expects to share at least 500,000 umbrellas in Guangzhou this year while a Jiaxing-based basketball-sharing company is getting positive coverage in the state media. 

Even as money is wasted and companies merge or go bust, the sharing model looks to have a brighter future in China than almost anywhere else.

Homegrown ride-sharing and home-sharing companies emerged in China early this decade, shortly after Uber Inc. and Airbnb Inc. launched in the U.S. The industry has boomed ever since.

According to the Chinese government’s sharing-economy research office (there really is such a thing), 600 million Chinese conducted business worth USD 500 billion in the sector in 2016, up 103% over 2015.

Numbers like that attract investors: Chinese sharing companies raised almost USD 25 billion last year. The sector has grown well beyond cars and apartments: Bike sharing has been one of the country’s most visible — and bubbly — destinations for venture capital over the last few months. Even as much of the Chinese economy is slowing or stalling, the government expects China’s sharing economy to account for 10% of GDP by 2020.

Three factors justify that optimism. The first is China’s demographic profile. At one end of the spectrum, China’s millennials are the engine for the country’s world-beating e-commerce industry and the sharing economy that’s grown out of it.

Rather than splurge on a car — or even a phone battery pack — many young people in the country would prefer to save money for lifestyle experiences such as travel, or to seed their own startups. At the same time, Chinese seniors lack a strong social safety net and are thus dependent upon the support of children and grandchildren. 

The second factor is the rapidly changing nature of Chinese consumption. Skeptical about product safety, faced with rising home prices and burdened by the responsibility of caring for those aging parents, middle-class Chinese report they’re becoming more discriminating in how they spend their money. That’s propelling a well-documented shift away from mass-market products toward premium products and services.

The third and most important factor is the Chinese consumer’s embrace of mobile payment systems such Alibaba’s AliPay and Apple Inc.’s ApplePay. Chinese mobile-based payments were 50 times greater than those in the U.S. in 2016.

This welcoming climate means many of the world’s innovations in sharing businesses may start coming out of China, rather than Silicon Valley.

Already Chinese bike-sharing companies are expanding into and being copied in Southeast Asia, spreading a business model built for China’s peculiar transportation challenges. And soon China’s vast manufacturing base may give rise to an app-based sharing economy of its own, providing small manufacturers access to 3D printers and other equipment.

Sure, there will be boondoggles and busts along the way. But one day, China may be the one teaching the world how to share.

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TAGS: Uber | Airbnb | sharing economy
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