Beijing-based bicycle-sharing company Bluegogo has announced its imminent bankruptcy. The news was followed by shock and anger from users of the blue bikes, who were suddenly unable to retrieve their deposits. Thus an important question in China’s bike-sharing boom was raised: how can these companies repay their customers?
As the third-largest bike-sharing company in China, Bluegogo was once worth RMB925 million (USD140 million) and had a fleet of 600,000 bikes. The service reportedly had anywhere from 11 to 20 million users, each of whom was required to put down a RMB99 deposit to register.
But after just one year in operation, Bluegogo now reportedly owes more than RMB200 million to employees and technicians, as well as an additional, unknown sum of users’ deposit money.
Although the bike-sharing service had been experiencing financial issues since June, news broke on November 15, when numerous media outlets reported that Bluegogo was not only facing bankruptcy but that its CEO, Li Gang, had been missing in action for months and employees had stopped being paid.
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On November 16, Li published an open letter in which he apologized for the company’s actions and announced that Bluegogo had been handed over to Sichuan-based Biker. In the letter, Li promised to pay employees “as soon as possible” and refund user deposits once “technical integration” is completed.
Bluegogo isn’t the first shared bike company to abruptly shut down for financial reasons – though it is certainly one of the biggest. Among this year’s bike-sharing casualties are Chongqing-based Wukong, Beijing-based companies 3vBike and Coolqi, and most recently, Guangzhou-based Xiaoming and Wuhan's government-backed bike-rental service.
The trend has forced authorities to address the issue of consumer protection regarding bike sharing in China. In August, new regulations were issued requiring companies to place deposits in separate bank accounts, presumably so they don’t (mis)use the money.
According to Tech in Asia, Ofo stores all client deposits in CITIC Bank, and Mobike puts deposits in a separate account at China Merchants Bank. However, many shared bike companies only partially implement this strategy, and some ignore it altogether.
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No one knows how Bluegogo handled deposits. But the fact that the deposits are not immediately being refunded is cause for concern. According to China Plus, the vice-CEO of Bluegogo was quoted in February as saying the company did use some deposit money for business operations.
Coolqi is another failed shared bike company that was suspected of questionable financial practices. Once the third largest of its kind in China, with 1.5 million users and 1.4 million bikes, the company came under intense scrutiny after their CEO was dismissed in September. Like Bluegogo, the company suddenly ceased refunding its hefty RMB298-per-person deposits.
On November 20, Coolqi made the controversial announcement that it would no longer issue deposit refunds in Beijing. Instead, all users must physically turn up at the company’s offices in Chengdu to retrieve their money.
The Ministry of Transport and authorities from the People's Bank of China and the National Reform and Development Commission met last month to discuss bike-sharing deposits. Though whether stricter rules and regulations will be put in place as a result is yet to be seen.
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