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Friday, May 19, 2017
China Is the Future of the Sharing Economy
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 $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. No doubt, given the hype, they won't have trouble securing funding.
It's easy to mock such businesses. (Just ask Kobe Bryant if anyone wants to share a basketball.) But 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 $500 billion in the sector in 2016, up 103 percent over 2015.
Numbers like that attract investors: Chinese sharing companies raised almost $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 venturecapital 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 percent 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 Chinese youth 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. They can also personally remember an earlier, harsher China. Unsurprisingly, they're by nature more frugal, which makes sharing assets more appealing.
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. This has a twofold effect. First, money that might have been spent on, say, a car, is instead saved by ride-sharing and applied to other, premium purchases. Second, sharing enables access to premium experiences -- say, via a very good home share during a vacation. Interestingly, this trend parallels the growth of a rich, e-commerce based trade in secondhand goods (in effect, long-term sharing businesses), including luxury items like Gucci handbags.
The third and most important factor is the Chinese consumer's embrace of mobile payment systems such Alibaba Group Holding Ltd.'s AliPay and Apple Inc.'s ApplePay. Chinese mobile-based payments were 50 times greater than those in the U.S. in 2016. These days, it's commonplace to see Chinese consumers waving their phones in front of a payment terminal, or scanning a QR code to complete a transaction which, in many cases, might be for a very small sum. (A typical Chinese bike-share requires payments that range from $0.07 to $0.14 per 30-minute ride.) Little wonder that some investors might think that an umbrella-sharing service could be viable.
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.