Shanghai’s Mobike and the Entrepreneurial Culture in China

Published on Author tylerc18

After China’s feudal system was abolished and a republican government was formed in the 1920s, a sector of small and medium-sized enterprises (SMEs) was created. This sector was virtually eliminated in the 1950s with the collectivization of agriculture and the nationalization of industry under Mao’s Communist government. Enterprises had to seek approval from the government for all expenditures exceeding $10, and SOEs held near-monopolies in the market. China’s “iron rice bowl” system, which is now abolished, guaranteed life-long employment in SOEs and controlled nearly every aspect of employee’s lives. Thus, it was difficult for government outsiders to gain significant social and economic standing. The reforms of Deng Xiaoping and the “opening up” of China’s economy has spurned spurred private sector growth. During the last 35 years the entrepreneurial sector has grown from about zero to “more than six million registered private businesses”, which account for 70% of China’s GDP. In 2000, private sector and state-owned enterprises generated equal parts of China’s GDP: 4 trillion yuan. This number has grown 18 times for private sector companies, while state-owned companies have only grown by one-third of private sector industries.

Historically, China’s entrepreneurs have been relatively uneducated and have had little to no management experience. In modern-day China, entrepreneurs are well educated, and average about 31 years of age. They are ambitious, curious, and are aware of the historical difficulties of generating investment and company growth. One company in particular, Mobike, is reaping the benefits of the recent growth of China’s entrepreneurial sector.

Mobike is a Shanghai bike-sharing startup founded in 2015 by Hu Weiwei. The company is unlike government-owned bike-sharing companies whose bikes are free and must be placed in designated areas around cities. Mobike’s bicycles are self-locking, can be left anywhere, and users unlock the bikes by scanning a QR code through the Mobike app. It costs about 1-2 yuan to use the bikes for one hour. In September 2016, Mobike had 30,000 bikes in China’s major city hubs, and planned to expand operations to 100,000 bikes by the end of 2016 due to an undisclosed investment from internet giant Tencent. Tencent owns WeChat, which is a social media app with over 800 million users. This investment will inevitably encourage young Chinese entrepreneurs and further fuel China’s private sector, as if it were not growing quickly enough.

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13 Responses to Shanghai’s Mobike and the Entrepreneurial Culture in China

  1. As I was reading your post, I thought about the way that startups operate in the US and wondered how these companies are funded. Is there a large private equity-style market for these types of companies as there is in the US?

    • Alden, I found an interesting JSTOR article describing the difference in Private Equity investment between the United States and China, both size wise, developmentally, as well as by investment thesis. An interesting read which clearly highlights the difference of the PE sector of the two countries.

      • Peter, one point that I found particularly interesting about that article is that it’s much harder for PE firms in China to exit their investments since a firm must show years of positive income before they can IPO. While PE investments are already fairly illiquid, this prerequisite in China makes these types of investments much more long term.

        It will be interesting to see how firms like Mobike continue to develop in the future – will the startup environment be dominated by China’s largest tech players (Baidu, Tencent, etc.)? How will China’s anti-monopoly laws come into play when these firms have a hand in a growing number of startups?

  2. An interesting read and seems like the rapid growth of entrepreneurship has coincided with a shift to a consumer based economy. It seems as though investment opportunities in the way of PE, as Alden mentions above, or Venture Capital could be strong sources of growth in the future. If investors are inclined to invest in small Chinese companies, which have access to a population of people seen no where else in the world, this sector could see a boom in the near future.

  3. I think this Mobike idea is interesting, and is again an example of China copying what works really well in America and implementing in China itself. Trend wise, it seems that the Chinese entrepreneurs like to adopt American business models for their own benefits. So this company has no relations at all to the government? Sometimes even those private entities have some form of ties to the Chinese government. Uber failed in China and ultimately had to accept a deal with China’s “Uber”- Didi Kuadi, which means Uber collaborates with the Chinese government. Besides that, I think this company capitalized on the growing millennial population of Shanghai and their desires to experience the city in a more pristine fashion.

    • As stated below in my reply to Mason, I can find no trace of government interference with Shanghai’s Mobike. One source likens the bike-sharing battle of today to the Uber-Didi battle of previous years; and goes so far as to say that it is more competitive, as well as more welcome and less regulated by the government, as bikes do not burn natural gas. Mobike’s main competitor, Ofo, makes cheaper bikes and is geared toward university students. They are, perhaps ironically, backed by Didi.

  4. The Chinese consumer class is growing at an explosive rate; household income is rising for millions and millions of Chinese citizens giving them more disposable income. I think this, coupled with just how densely packed Chinese cities are really opens the door to entrepreneurship. While some of this is certainly by design instituted by central planning from the Chinese government, I think we can expect to see a lot more Mobikes and Wechats in the near future. The only real question is, would this kind of explosive private sector growth be sustainable. U.S. at times has a hard time keeping similar startups afloat (dot com bubble) and our economy is much more mature. It has always been consumer driven. In this regard, China is new on the scene. I wonder if we’ll see the sustained growth or some financial crisis ready to wipe out all of these start-ups.

    • For every high-visibility startup in the US there are probably 100 or more that get off the ground without private equity other than that of the founders. Of which many will fold within 5 years, but that’s a lower rate than in the venture capital world.

      China has millions of entrepreneurs. Even if the average “quality” (whatever that might mean) is a bit below that of the US, the sheer number of players means that there will a lot that through a combination of competent leadership, luck and good ideas will do really, really well.

  5. Chris, I share some of Mac’s skepticism that the government has no involvement with this company. You mention their own bike system, which ironically sounds sort of like W&L’s blue bike system, so clearly the Chinese have an interest in this type of transportation. The Chinese account for 20% of global emissions, which makes sense as we’ve seen through Hessler that the country is rapidly industrializing. Having just signed the Paris climate agreement in September, do you think the Chinese government will have an even greater interest in reducing emissions? It certainly seems so, especially as the U.S. likely starts to back out of agreements like this, which President Trump has threatened to do on numerous occasions.

  6. I think the Mobike example is indicative both of changing consumer culture (in which renting a higher quality bike for a short period of time is more attractive than using a lower quality government bike for free) and changing entrepreneurial environment (in which the potential profit derived from tapping a new market outweigh the costs of navigating regulation, although these costs are certainly still present). As other commentors have mentioned, I am interested in the investment model driving this kind of entrepreneurial expansion, particularly whether investors are primarily other enterprises, like Tenect, wealthy Chinese citizens, or foreigners.

  7. Remember that in the US most businesses finance expansion out of retained earnings. The same is true in China. In China that even includes high-flying internet businesses such as Alibaba. Yes, they eventually did an IPO. But their growth was internally financed.

    More from Mar 15th on (next week…) on the Chinese financial system: it is easy to forget that as recently as 1990 there were effectively NO bankers in China. We shouldn’t expect that you can go from zero to a “mature” financial system in a quarter century. We also shouldn’t expect other financial systems to look like that of the US. Venture capital is relatively unimportant in Europe, Japan and elsewhere – which did not prevent them from becoming high-income polities.