MANY of China’s shared-bike users have fallen victim to defaults on their deposit refunds, after two operators went bust recently.

Coolqi, known by their green shared bikes, and Bluegogo, with its iconic blue bikes, have garnered public disapproval as users are having difficulty getting deposit refunded upon request.

The two firms have appeared on the latest list of bankrupt bike sharing firms, issued by the China E-Commerce Research Center (CECRC). Coolqi, with 1.4 million shared bikes, went bankrupt November in a suspected capital chain break, and Bluegogo, with 830,000 bikes, closed the same month due to suspected financing failure.

It is generally believed that the fall of Bluegogo is the first of many major casualties in a fast-paced tech sector, which many analysts warn is hurtling towards widespread fallout.

Bluegogo was among nearly 30 Chinese startups enabling users to rent bikes using their smartphone and then dismount and lock them at any point on public roadsides. The company launched in 2016 with more than US$90 million dollars in venture funding. At its peak, Bluegogo claimed 20 million registered users, deployed more than 700,000 bikes, and launched operations across China as well as in San Francisco and Sydney.

Bluegogo’s two attempts at global expansion both ended in failure. In San Francisco, the company ran into stiff resistance from local politicians and suspended operations after only four months. In Sydney, Bluegogo supplied bicycles for local bike-sharing venture Reddy Go, but the Australian firm broke off partnership negotiations and dropped Bluegogo in favor of another bike supplier.

But the full extent of Bluegogo’s financial difficulties in its home market didn’t emerge until last week, when Chinese social media erupted with complaints about the company. Users fumed over claims to no longer be able to unlock Bluegogo bikes via the app and that the company isn’t responding to requests for refunds on their deposits.

Chinese media descended on Bluegogo headquarters in Beijing to discover offices locked and abandoned, and Chinese press reported that the company dismissed staff Wednesday. Multiple senior Bluegogo executives confirmed that they have left the company. According to several reports, Bluegogo owes US$300,000 in office rent. A Bluegogo bike supplier told the Global Times the company owes them more than US$1.5 million.

Li Wensheng, father of Bluegogo founder Li Gang, met with bike suppliers and investors Thursday, admitting to the company’s incompetence in financing a sustainable capital chain. In a public letter released Thursday night, Bluegogo chief executive Li Gang said the company was being acquired by another Chinese firm.

“As a CEO, I’ve made mistakes,” Li wrote. “I was filled with arrogance.” He denied reports that he had fled the country.

None of the parties involved have claimed responsibility for refunding public deposits.

In addition to the bike users, Bluegogo employees have disclosed on social media that the company may be unable to pay employee salaries.

Debtors have queued in front of Coolqi’s headquarters in Tongzhou District in Beijing, asking for a return on their deposits.

The company announced last Sunday that it has entrusted a company in Chengdu, capital of Southwest China’s Sichuan Province, to deal with refunds.

Xinhua reporters tried to call the company’s three service hotlines, but lines appeared busy.

Gao Weiwei, former CEO of Coolqi, said the 650-yuan (US$98) cost of a bike was enough to cover a user deposit of 298 yuan. “In the worst case scenario, we will allow debtors to ride our bikes home,” he said.

China’s bike-sharing market is expected to rake in 10.3 billion yuan in revenue this year, a 736-percent increase from 1.2 billion yuan in 2016, according to a report from iiMedia Research.

It estimated the number of shared-bike users in China to hit 209 million this year, compared with 28 million last year.

A report issued by the China Internet Network Information Center in August estimated that users have paid a cumulative 10 billion yuan in deposits for registering on shared-bike apps.

For example, Bluegogo requires a deposit of 200 yuan before using its mobile app to scan the QR codes and unlock its shared bikes.

Zhao Zhanling, a lawyer with the Beijing Zhilin Law Firm, told Xinhua that bike sharing-firms entrust banks to deal with user deposits. However, as the number of users and deposit amounts change day to day, it is difficult to have an accurate number.

According to the China E-Commerce Complaints and Rights Protection Service Website, a third-party e-commerce dispute mediation platform, complaints concerning shared bikes have topped e-commerce disputes.

Among the accused operators, Bluegogo and Coolqi jointly account for 20 percent of complaints, while the market leader Mobike takes 60 percent of complaints, mainly involving difficulty in getting deposit refunds and bad customer service.

China Money Network reports that Bluegogo raised US$58 million in February, the majority from an aptly named Beijing-based venture fund Black Hole Capital and Smart Xintong, a Shenzhen-based health-care equipment developer. The investments valued Bluegogo at US$140 million.

Bluegogo’s crack-up follows the collapse of several smaller Chinese bike-sharing companies within the past six months, including Wukong, 3vBike, and Ding Ding. Many analysts predict the industry is headed for a bloody consolidation in which only one or two players survive. The sector’s two giants — Mobike, backed by Tencent Holdings, and ofo, backed by Alibaba Group — have each raised roughly US$1 billion in funding and are widely considered the industry’s final victors.

Over the past 18 months, China’s bike-sharing industry has rolled out with astonishing speed as rival companies saturated city streets with a riot of orange, yellow and blue bikes. Many have launched operations overseas in locations including Boston, Washington D.C., Singapore and Kuala Lampur.

Chen Liteng, analyzer from CECRC, said China’s bike-sharing sector was developing at an extremely fast clip. “Although governments at various levels have created guidelines to regulate the market, there are no clear requirements concerning details such as how to manage and use the deposit funds,” he said

Cao Lei, CECRC director, said bike-sharing operators had used the practice as a way of financing.

The investment-driven bike-sharing market has been ballooning fast.

Cao said a number of Chinese cities, including Beijing and Shanghai, had limited the increase in the number of shared-bikes, and that this had impaired bike-sharing companies’ appeal in capital markets.

He advised regulators to set rules on a unified process and time limit for users to get deposit refunds from bike-sharing operators, and require firms to keep independent bank accounts to ensure they can afford to refund users.

(SD-Agencies)