Perhaps China is not where “sharing economy” originated, but it sure is one of the countries that has experienced its fullest development and obtained the widest acceptance. In a matter of years, the model has been truly embraced in the Middle Kingdom, growing from a fringe concept only recognized by China’s tech-savvy youth to an economic powerhouse that’s reshaping traditional industries.
The peer-to-peer nature of the rental economy combined with fast innovation, high smartphone penetration, widespread mobile payment, and a dense population, and users who are more open to the idea of “sharing” rather than “owning” stuff, have all added to the success of the rental economy in China. In addition to average users and tech companies, the government is also engaged in the development of this sector, which is seen as a major driver for its economic growth in the future.
The sector’s transaction volume grew 103 percent YoY to RMB 3.45 trillion ($503 billion) in 2016, according to a report from China’s State Information Center. The report expects the size of this field to grow by 40 percent annually in coming years, accounting for over 10 percent of domestic GDP by 2020, and that the ratio will continue to grow to roughly 20% by 2025.
“Sharing economy” is an umbrella term that covers everything from homes to rides, but it works the best when there’s a high degree of consumer pain in their daily life that guarantees high-frequency usage. For example, the logic behind the ride-hailing boom is straightforward: China’s clogged public transportation prompted the rise of ride-hailing tools like Didi Chuxing which offers passengers are more timely and accessible traveling means and drivers a chance to increase efficiency.
But when we look at the emerging verticals, the problems they are addressing are less painful or even made up. Apart from ride- and home-sharing—which have already achieved great popularity abroad— power bank rental is among the few bubbly verticals that originated from China. Although the sector has already attracted a large amount of attention both from entrepreneurs and investors, arguments on the validity of this idea still go on. Why should I rent a power bank when I already have one? Similar arguments go for several new verticals like basketball and umbrella sharing, both of which have attracted capital flows.
While some ideas may spark skepticism, others will leave you speechless, wondering if these entrepreneurs are actually serious. By adding “sharing economy,” it seems that many either founders lack business sense or are just looking for dumb money from investors. Look at some of the latest ideas:
Shared stool: By scanning a QR-code on the stool, users could have a rest on anywhere. (Hmm, wonder what will happen if I sit on the stools directly?)
Shared fridge: Shared refrigerators work similar to vending machines, only that there’s no lock on the fridge, meaning that anyone can easily get the food without paying.
Shared air conditioner: Guangdong-based MOB rolled out shared air conditioners earlier this month, demanding an RMB3,000 deposit and RMB 1 is charged per hour. But user doesn’t seem to buy the idea. “Why not buy one if we have to pay a deposit this high?” one netizen asked.
It’s pretty clear that there’s a general misunderstanding of the term to an extent that people are using “sharing economy” interchangeably with rental businesses. And this misconception is one of the reasons that turns sharing economy to an over-hyped sector as it is now. “Idle” is a key word for sharing economy, which means the things people want “share” are idle stuff rather than something produced to cater to the demand. The core idea behind this term is to relocate the existing social commodities to increase efficiency.
One of the reasons that rental business tend to label themselves as sharing economy is the market size (in Chinese). Market size is a key factor that leads to the high valuation of ride-sharing companies like Uber. In 2016, there were around 60 thousand taxis in Shanghai and the fleet for China’s top car rental company totaled 30 thousand around the country. On the other hand, there are 1.3 million private cars in Shanghai alone, far exceeding the potentials of a rental business. This explains why the market valuation of ride-sharing firms is much higher than car rental startups.
Although many are engaged in the practice of glorifying rental businesses as sharing economy, it seems that the fanfare surrounding sharing economy only goes on in entrepreneur and VC circles. When it comes to actual user adoption, it’s a bit frustrating. Even among our writers, a group of tech-savvy people, few have tried beyond really painful demands such as ride-hailing, home sharing, and bikes.
Flocking to what ever is hot until the concept stinks is one of the problems of China’s tech circle. What happened to the sharing economy reminds me of what happened to the smart hardware industry when it was at its peak just a few years ago. After the initial rise brought by smart wearables, lame smart gadgets start to emerge. Smart toilet cover, smart fart tracker to track intestine movements (what?), smart waist belt, to name just a few of the weird ideas.
Although the industry is experiencing a sour turn, there is still a future in China since the country is the perhaps the most fertile of any for this type of business model. If the industry wants to maintain its development and become a pillar sector as the government report has predicted, we still need more true innovation rather than gamblers that may or may not profit through hype.