The Shared-Bike Bubble Burst, and Every Link in the Bicycle Supply Chain Was Hit

When an internet bubble that had reached deep into manufacturing burst, what vanished was not just numbers in the accounts of internet companies and their investors.

Wangqingtuo, the town in Tianjin that shared bikes made famous, now avoids the term altogether.

At a shop on Wangqingtuo's main street selling Shanghai Phoenix and Flying Pigeon bicycles, the owner is used to reporters' questions and doesn't want to talk: "You've come from Beijing, and you all ask about shared bikes. Go look at the factories, go take pictures at the shared-bike graveyard — it's all the same stuff."

Wangqingtuo, where the bicycle industry is concentrated, has been through two waves of heavy media coverage. The first came when shared bikes had just blanketed the country, and the story was that the internet economy had saved the bicycle industry; everyone who mentioned shared bikes was excited and hopeful. The second came when reporters arrived to record the town's decline after the shared-bike bubble burst.

Today there is no trace of shared bikes left in Wangqingtuo.

The billboards along the road into town now advertise electric bicycles. Drive past a sign reading "China's Bicycle Industry Base, Wangqingtuo Welcomes You" and you are in the town. The shops along the main street mostly sell electric bikes and mountain bikes; almost none say they do or once did shared-bike business, and there are no secondhand shared-bike dealers in sight. One shop still has "shared bikes" written on its sign, but the owner no longer does that work.

"These used to all be shops with a factory behind them — ask any of them, they've all done shared bikes," said Mr. Deng, a hired-car driver who knows Wangqingtuo well, pointing at the bicycle shops lining the road. The owners' replies were all the same: "Never did it," or "Not anymore."

Off the main road, in Wangqingtuo's industrial zone, we could not find a single factory still filling shared-bike orders. Some factories still running avoid the subject, as if it were an unlucky word to say. More often the workshops stand empty, the people gone.

The damage runs from the small factories at the bottom of the supply chain all the way up to the handful of listed bicycle companies.

Nearly every one of the few A-share listed bicycle companies mentioned losses from shared bikes in the half-year reports for 2018 they released in August.

Shenzhen Xinlong Health saw sales of bicycle components fall 31% after its shared-bike orders dropped 90%. Shanghai Phoenix, a supplier to ofo, saw revenue and profit for the first half of this year fall more than 50% year over year, and reported that bicycle and component makers more broadly were facing overcapacity and idle production lines. Jiawei New Energy, which supplies solar-panel modules to Mobike and Bluegogo, also saw first-half revenue and profit fall sharply, down 44.15% and 91.85% year over year.

Around September, Shanghai Phoenix and Best Logistics separately sued ofo over unpaid bills, and Yunniao Logistics was reported to be chasing ofo for payment as well. Meanwhile, the acquisition talks among Didi, Alibaba and ofo have dragged on for nearly half a year without result, and Alibaba-backed Hellobike changed its name to Hello Inc., which makes it look even less likely to put money into ofo.

Meituan bought Mobike, the market leader, for $2.7 billion five months ago — a deal that showed $500 million to $1 billion of debt. Meituan later wrote in its IPO prospectus that it was unclear when the shared-bike business could turn a profit.

By this point, exactly two years had passed since shared bikes were hailed as the internet industry's next big opportunity.

From Inflation to Collapse: The Internet-Fueled Bike Bubble Lasted Exactly Two Years

In August 2016, Mobike entered Beijing and within days was a bigger hit than anyone expected. Its download numbers passed apps like Dianping, which were spending heavily on back-to-school campaigns, and its servers briefly buckled under the surge of new users.

The next month, Mobike and ofo — which had started as a campus bike-sharing service — each announced tens of millions of dollars in Series B funding. Over the following year Mobike raised four more rounds totaling $1.1 billion, and ofo, close behind, raised four rounds totaling $700 million. Both companies were valued at more than $2 billion.

More companies jumped in during this period. According to public information, nearly 70 of them — including Bluegogo, Youbike, Xiaoming Bike, Coolqi, CCbike, Yibu, Qibei and Hellobike — joined the shared-bike free-for-all. At least two funding deals were announced every month, averaging over 10 million yuan each.

No other money-losing new business has ever drawn more than $1.8 billion of capital in a single year the way shared bikes did. Group buying took seven years to reach that scale; ride-hailing took four.

The logic of Chinese internet venture investing — lose money to seize the market now, make money later once one player is left standing — played out in full once again with shared bikes.

Mobike and ofo charged users almost nothing, competing instead through subsidies and free-ride promotions. Holidays, member days, a new funding round: any occasion was reason enough to let users ride free in celebration.

In less than a year, the second-tier brands began to clear out. Coolqi, Xiaoming Bike, Youbike and others stopped operating, and several could not even return users' deposits.

At the time, outsiders did not yet read these signs as the industry dying; the common view was that it was simply consolidating toward a monopoly. But the merger of ofo and Mobike never happened.

Into the first half of this year, ofo was still placing orders with its supply chain. In May 2017 it signed a one-year contract with Shanghai Phoenix for no fewer than 5 million bikes; by May 2018 less than 40% of that order had been filled, and the bill still has not been settled.

Once, Shared Bikes Looked Like Both the Bicycle Industry's Destroyer and Its Savior

When Mobike and ofo were founded in 2015, both counted their operating costs carefully — which parts wore out more slowly, which cities had lower rates of bike vandalism. Before the large-scale rollout began, hardly anyone thought this was going to be a big business.

That same year, China's domestic bicycle industry was already sliding. According to the China Bicycle Association, national bicycle output fell 3.36% in 2015, the steepest drop in five years. Beijing's transportation department separately reported that the share of trips in the city made by bicycle had fallen by a third over 15 years, to 12.4%.

Car sales had risen by double digits for several years running, and public transit — buses, subways, light rail, BRT lines — had steadily improved across the country. Those were the main reasons people cycled less. In Beijing alone, the share of trips taken by subway grew nearly eightfold between 2000 and 2015.

Electric bikes, faster than a bicycle and cheaper and easier to learn than a car, were another reason cycling declined. China's cities were entering a phase of rapid urbanization during this period, and residents of fourth- and fifth-tier cities and towns increasingly preferred electric bikes. According to data from the China Bicycle Association, the number of electric bikes in China grew nearly eightfold between 2003 and 2013.

The internet played a part too, of course. Around 2013, ride-hailing made it easier to get a car. As Didi, Kuaidi and Uber fought for market share, heavy subsidies helped the ride-hailing user base grow 559.4% in a single year, raising the share of city trips taken by ride-hailing and getting people used to calling a car.

Once shared bikes arrived, the commuter bicycle lost its market. People preferred riding a shared bike, which cost next to nothing and was no loss if it disappeared; over short distances, whether a bike was pleasant to ride stopped mattering much.

Orders and sales at bicycle factories fell in a straight line.

A bicycle-parts factory in Guangzong County, Hebei, told QDaily that its orders dropped 70% as soon as shared bikes entered the market, and shrank further in the slow autumn-winter season.

Giant, the world's largest bicycle maker, noted in its 2017 annual report that shared bikes had cut its output by 10.5% and its sales by 14% that year. The company had to cut prices to hold its sales volume. Its factories, meanwhile, were running at 82% of capacity, down from 93% a year earlier.

Shared bikes battered an industry that had been fading for years — and at the same time looked, to the people inside it, like a savior.

Tianjin is China's largest bicycle-manufacturing base, producing on average about half the country's bicycles. Bicycle or component factories are spread across all 15 of its districts and its one county. During the frenzied expansion of shared bikes from late 2015 through the first half of 2017, most of Tianjin's bicycle factories took shared-bike orders, with Wangqingtuo town in Wuqing District the most concentrated of all.

In that stretch, Wangqingtuo went from "China's number-one bicycle town" to "China's number-one shared-bike town." To compete for shared-bike orders, the town even opened an investment-promotion office in Beijing.

To land more of those orders, many manufacturers would start production the moment a 30% deposit arrived, taking a second and a third order before the first was finished. One factory owner who had filled ofo parts orders said the large factories, unwilling to give up their existing domestic or export work, passed the shared-bike orders they could not handle down to smaller factories — which in turn dropped everything else and made nothing but shared bikes.

Tianjin's bicycle output grew 0.48% in 2016 and 19% in 2017, while the share of it going to exports fell 5% and 7% in those same years.

Sun Hao, CEO of the large contract bicycle manufacturer Fuji-Ta, once called shared bikes "an opportunity as vast as the sea." He also predicted that renting rather than buying would become the main way people used bicycles, and that working with ofo was, alongside e-commerce, an important way for Fuji-Ta to make its turn toward the internet real.

In April 2017, ofo and Fuji-Ta held a joint press conference to announce a strategic partnership. They said then that they would set up the first global R&D center for shared bikes and write hardware standards for the industry — "growing this industry together, bringing China's supply chain to serve the world and shape the world."

From a first order of 50,000 bikes to annual output of 5 million, Fuji-Ta became one of the main suppliers as ofo expanded from campuses into cities across the country. In 2017 Fuji-Ta's capacity climbed to 20 million bikes, more than double what it had been, and that year it became the world's fourth-largest bicycle supplier.

Even now, at Fuji-Ta's factory on Junliangcheng Road in Tianjin's Dongli District, you can still see workers in Fuji-Ta uniforms with "ofo" printed on the cuffs. Mr. Zhao, who works there, told QDaily that the workshop supervisor had those uniforms made during the ofo period — one or two per person, and no other workshop in the factory had them. Back then that workshop's output was double a normal workshop's, there was a real sense of excitement and pride, and wages went up too.

They have not made anything for ofo in more than a year.

After the Bubble Burst, Even the Surviving Shared-Bike Brands Stopped Placing Big Orders

When the O2O bubble burst in 2016, there was a joke going around that venture capital was helping build socialism.

That bubble really did little damage outside the internet companies themselves. Once the platform subsidies disappeared, laundries, nail salons and restaurants carried on with the offline business they had always had. Manicurists and beauticians who had taken orders on their own through internet platforms went back to working in shops.

But manufacturing tied to an internet bubble is a different matter.

Most bicycle factories complete an order across three payment cycles. When a client places the order, it pays a deposit of at least 30% of the value; when production is finished, it pays another 60%; some time after taking delivery, it pays the rest. A payment cycle usually runs 90 days. When an operator collapsed and its people vanished after paying only the deposit, the factory absorbed the rest of the loss alone.

Some of the shared bikes that were built but never sold ended up as scrap. Aluminum alloy sells for just over 4,000 yuan a ton, and a shared bike weighs about 15 kilograms, so a ton is roughly 67 bikes. By that math a shared bike is worth about 60 yuan as scrap metal. But that is an idealized figure: recycling a shared bike means taking it apart, and the frame and body carry plastic parts that cannot be recycled at all.

Others went to secondhand dealers. In a secondhand dealer's warehouse in Wangqingtuo, QDaily saw about ten brand-new Coolqi bikes; a member of staff said they could get more than a thousand more like them, sold at half of cost price, mostly to towns and villages that shared bikes have not reached.

While carrying these bad debts alone, bicycle factories also cannot count on new orders.

As governments in many places banned the deployment of new bikes and capital lost patience, the surviving operators — ofo, Mobike and the rest — have shifted to collecting and repairing old bikes to put back on the street, which is cheaper.

There are two Mobike-run collection warehouses and repair yards in Tianjin's Dongli District, one old and one new, about 3 kilometers apart. The old one has been running for about two years; the new one started as a plain warehouse and only began repairing bikes in the past month or two. A temporary worker there, whose job is to park the repaired bikes, told QDaily that this warehouse alone has at least 40,000 bikes waiting to be dealt with, and that they have been piling up for a long time. On Baidu Tieba, Mobike is hiring repair workers in bulk at one to two thousand yuan a month above the going rate.

That is why, walking down city streets today, you see fewer new bikes and more refurbished old ones, their locks, frames and seat posts in mismatched colors.

Because shared-bike orders once carried higher margins, the bicycle and parts factories that took them had turned away other domestic-brand and export work, adding workers and production lines to rush the bikes out.

Ms. Wei of Cheng Shin Tire took shared-bike orders too, supplying tires, handlebars, brakes and other parts to Bluegogo, ofo, Coolqi and other brands.

After the second half of 2017, payments began to dry up, and by the time the operators went under, Cheng Shin Tire was still owed 400,000 to 500,000 yuan. Winning back the export orders it once turned away has proved hard. In the end both the factory and the store cut half their staff.

Even large factories with mature operations saw business worsen once shared-bike orders shrank.

As ofo's orders grew, Fuji-Ta turned export workshops with thin order books over entirely to shared bikes, adding workers and production lines across the board.

According to Mr. Zhao, at the peak of ofo's orders a single workshop could turn out 480,000 bikes a month; now, working on orders from Didi's Qingju bikes, it manages at most a little over 100,000. After shared-bike orders fell off in late 2017, Fuji-Ta began laying people off, and has now cut a third of its workforce.

Small factories, with no room to maneuver, simply shut down.

By the count of China National Radio's Voice of Economics, Wangqingtuo had more than 500 bicycle manufacturers around 2017; only half were still alive in the first half of 2018. Local residents said most of them were small factories with twenty or thirty workers. Staff at several shops still open told QDaily that the storefronts nearby that used to work only on shared-bike orders have all moved away, and no one knows where they went.

In Qingguang town, in Beichen District in northwestern Tianjin, there are also small factories that supplied shared bikes and then disappeared. Strict government environmental enforcement was one reason bicycle factories folded so quickly, but the bigger reason was that the orders dried up and there was no living left in it.

No Link in the Bicycle Industry Was Spared

The decline of the shared-bike operators has not returned the bicycle industry to what it was. Every link the industry once relied on has been hit.

Tianjin Beifang Bicycle and E-Bike City, near Xinzhong village in the city's Dongli District, is one of the oldest wholesale markets for bicycle parts in Tianjin.

Mr. Du, a hired-car driver in Tianjin, told QDaily that five years ago the place was noisy and crowded, with delivery trucks coming and going all day; it grew quieter over time and started looking rundown from 2015 on. Walking into the trading center now is more like visiting an abandoned site — shuttered shops line both sides of the road, and some of the commercial buildings are falling apart. Fewer than 10% of the storefronts are still open.

Beyond the manufacturers and the supply chain upstream, the sales channels downstream have suffered too.

In the cities ofo and Mobike entered, chain bicycle stores like Giant, Xidesheng and Merida have closed in large numbers — one brand closed more than a thousand stores in a single year.

Inside Beijing's Fourth Ring Road, the bicycle stores across the busiest commercial districts — Guomao, Sanlitun, Wangfujing and Dongdan, Yayuncun, Wangjing, Liangmaqiao and Sanyuanqiao — add up to fewer than 200, and some of those are currently closed.

Trek, the American high-end brand, has not been spared either. Its Shuangjing store, next to a popular residential area on the East Third Ring Road, has already closed; nine stores are left in Beijing, and the Wangjing and Tuanjiehu stores will close in November.

A bike shop is to a bicycle roughly what a dealership is to a car, and e-commerce cannot simply replace it.

It is not only that a bike is best chosen in person. A bike with gears cannot be unpacked and ridden straight out of the box: you have to assemble it and adjust the gears and brakes, which is more trouble than putting together IKEA's most complicated furniture.

And in daily use the chain, tires, brakes and gears can all go wrong. Most people have no wish to learn how to fix these things, so fewer shops directly hurts how convenient a bicycle is to own once you have bought it.

The only bicycle stores in big cities that look largely untouched belong to brands like Specialized and Brompton, where a bike typically costs more than 10,000 yuan. Those brands are no longer selling to people who ride to work.

And although the shared-bike bubble has burst, shared bikes themselves will be around for a long time yet. Consumers still have no reason to buy a bicycle of their own.

The East Third Ring service road is the route everyone takes from the Guomao office district to the Shuangjing residential area. During the evening rush at 6:30 pm on a weekday, a QDaily reporter counted 319 non-motorized vehicles going past in five minutes. Of those, 33 were electric bikes and 278 were shared bikes. Only 8 were ordinary bicycles.

The owner of a Wangqingtuo factory that has made mountain bikes for eight years told QDaily that they never took a shared-bike order, but his own orders still have not recovered, and he thinks it may take a few more years.

When an internet bubble that had reached deep into manufacturing burst, what vanished was not just numbers in the accounts of internet companies and their investors.

Correction, September 20: This article stated on publication that Xiangqi had ceased operations. That information was inaccurate; Xiangqi is still operating.

Cover image: thenational, visualhunt, Fernando Meloni on Unsplash