The Beijing Municipal Bureau of Financial Work is considering tighter regulations over the management of deposits collected by bike sharing companies, in order to protect consumers and reduce financial risk in the industry.
Bike sharing companies registered in Beijing may be asked to put all bike deposits they have collected into a special bank account that will be overseen by regulators, according to Chinese media reports citing insiders.
China’s mushrooming bike sharing companies have aggregated RMB6 billion (US$872 million) or more in user deposits, according to industry observers.
“The deposits do not belong to bike sharing companies, and they cannot touch this money,” said an authoritative person at the Beijing Municipal Bureau of Financial Work, according to the report. “This money cannot be used for loans or investments, activities that allegedly involves illegal fundraising.”
Ofo, a company claiming to be worth US$2 billion, is registered in Beijing, along with as a number of smaller bike rental firms. But if Beijing decides to formally launch such regulations, it is likely that other cities would follow suit.
In April, the Beijing Municipal Commission of Transport issued a tentative regulatory framework to better manage so-called bike sharing companies. The framework proposed requiring that bike rental companies open special bank accounts to manage deposits, and must return deposits within a certain time frame.
Fu Jun, chairman of Chinese conglomerate Macrolink Group and an investor in Beijing-based bike rental firm ofo, has stated that some bike rental companies have utilized bike deposits to rapidly enlarge their capital pool, while some also enlarged their capital pool by purposefully delaying the payback of users’ deposits. He advocated increased regulatory oversight of such transactions.
Tighter regulation over deposits could pose financial risks to some bike rental companies, as some rely on such deposits simply to stay in business. For example, bike rental companies currently charge multiple deposits for one bike, as each user is required to pay a deposit in order to ride it.
“Perhaps one bike can collect eight deposits now, but if new regulations requires companies to charge only one deposit per bike, many bike companies will not be able to survive because of the high cost of the business,” one insider said, according to the reports.
