New rules for rental economy user deposits clarify legal gray area

2 min read
share bikes pile ofo mobike reduced
Abandoned bicycles from various bike-hire companies including Ofo and Mobike (Image credit: 123RF).

Chinese bike-rental companies face more stringent scrutiny as the central government cracks down on misuse of user deposits, an issue that has recently sparked public concern on Chinese social media.

In a draft rule released Tuesday by the Ministry of Transport, customers will be provided with personal bank accounts specifically for their deposits, while the companies are tasked with safeguarding the funds. The law defines how customer deposits should be handled, clarifying a legal gray area. It includes specific procedures for authorities to address companies that are not in compliance with the law. Created jointly by the transport ministry and the country’s central bank, the document will be opened for public review on Apr. 3.

“The new rules will improve consumer right protections and help control public risk,” Chinese bike-rental company Mobike said (our translation) in a statement given to TechNode on Wednesday. The company said that it has allowed users to rent bicycles without a deposit since July.

The law comes as concern mounts about the financial stability of a number of mobility firms in the rental economy sector.  As rumors of bankruptcy circulated, more than 10 million users requested their deposits returned from struggling bike-rental firm Ofo in December. Hundreds of users later descended on its Beijing headquarters, demanding refunds.

An Ofo spokeswoman told TechNode on Wednesday that user deposits are being returned by order in which they were received, without providing further detail. Other companies caught in the same user refund debacle include Didi rival Yidao and Togo, the first car-sharing company using the same GPS-based model as Ofo and Mobike, according to Chinese media.

The Chinese government is working on tightening regulatory control over the mobility segment of the rental-economy industry, which has been hit hard by shrinking capital investment and a public opinion crisis. Government figures show that investments in the mobility rental sector shrank to RMB 41.9 billion (around $6.2 billion) in 2018, a 61% decrease compared with the RMB 107.2 billion in 2017.

In a press conference following the central government’s Two Session meetings on Mar. 15, Chinese Premier Li Keqiang said the government had allowed the development of new businesses with cautious intervention over the past year, but that it has a bottom line. He also stated that more prudent regulations would be introduced into China’s rental economy.