China’s first official bike rental bankruptcy leaves RMB 800 million of deposits in limbo

Bike rental company Xiaoming has officially begun bankruptcy proceedings becoming China’s first bike rental company to do so. The decision of the Intermediate People’s Court of Guangzhou, which was in charge of the case, was announced yesterday, July 10th, the Paper reports.

Xiaoming (小鸣单车) was part of a big wave of bike rental companies that started to fold and experience troubles with deposit returns at the end of last year. By November 2017, six bike rental companies in China have shuttered, including Coolqi. Once China’s third largest player in the bike-rental space, Bluegogo, found itself in deep debt and was taken over by ride-hailing giant Didi. Meanwhile, thousands of discarded bikes were left on the streets.

Since its founding in July 2016, Xiaoming has managed to deploy 430,000 bikes across more than 10 cities, including Guangzhou and Shanghai. The total amount of user deposits reached as high as RMB 800 million.

As the bike rental firm started to falter, users could not get their deposits back, prompting them to file the court case against Xiaoming’s parent company Guangzhou Yueji Information Technology Ltd. at Guangzhou’s intermediate court. Xiaoming has faced more than 110,000 claims from users, as well as 28 claims from suppliers. In addition, the total number of employees’ claims reached 115.

Xiaoming’s case was complex since it involves a large number of creditors scattered over a dozen large and medium-sized cities throughout the country, said Wu Xiaoping, vice president of the Guangzhou intermediate people’s court.

Another hurdle was that the majority of users were registered through the mobile app and paid deposits through mobile payment apps such as Alipay and WeChat. All the user data was stored in a cloud and had to be analyzed.

Thirdly, Yueji’s main property are bikes which, of course, are scattered across cities and challenging to deal with. The cost of recycling is too high, and the disposal is also difficult because of the excessive dispersion.

Meanwhile, the winners of the bike rental war in China—ofo, Mobike, and HelloBike—are still fighting for their markets both in China and abroad. Ofo recently announced that it will withdraw from Australia and has winded down operations in India announcing a new focus on more lucrative markets such as France.