With the world’s largest population – over 1.3 billion people – China is without question one of the world’s most exciting markets. Even though the growth of its GDP (Gross Domestic Product) has slowed down significantly, there are many sectors thriving in China, and the weakening of some mainstream economic indicators can have positive consequences, with the first one of them being a more sustainable path for growth.
On the previous decades, China’s giant steps towards becoming an economic power were guided by vast investments in infrastructure and excessive industrialisation which in turn produced huge migrations to cities and triggered the number of exports of Chinese manufactured goods. It was during these events that China positioned itself as a manufacturing center, eventually producing everything from parts for Apple’s iPhones to decoration tools. Nevertheless, this growth came with collaterals, the first one being huge leverage that today is proving hard to overcome. As Areddy and Wei (2015), from the Wall Street Journal, report: “Today, debt has swelled to more than twice the size of the economy, and some of those industries (that brought China’s apparent unstoppable rise), such as construction and steel, are reeling”. Another very important effect that this uncontrolled industrial growth brought to the country was a devastating environmental impact. According to a report by Lallanilla, from LiveScience:
“According to the Environmental Protection Agency’s air quality scale, any pollution sating above 300 means the air is unsafe to breathe. In Beijing, the reading has reached an eye-bleeding 886, comparable to living inside a smoking lounge.” (2013)
With this environmental degradation, the facts that state that China needs to mend its growth model and come up with more sustainable solutions might come as a blessing. There are also two other factors which are contributing to China’s innovative models. The first one, the lack of availability of space, which in turn leads to high prices. HSBC (2015) reports that “Already a growing number of Chinese and Hong Kong consumers are opting to rent, rather than own. The growth trend in these markets is most developed among younger people who are both limited in their cash and web-literate”. Precisely, it is this web-literacy that has enabled the full penetration of a new generation of Chinese startups which iterate around the sector of the sharing economy.
Just to have a brief memory of what the sharing economy is, we’ll refer to a simple definition which can be used for purposes of this article. The People Who Share (2015) defines the sharing economy as: “a socio-economic ecosystem built around the sharing of human and physical resources. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organisations”. Investopedia (2015) defines it as “an economic model in which individuals are able to borrow or rent assets owned by someone else. The sharing economy model is most likely to be used when the price of a particular asset is high and the asset is not fully utilized at the time”.
So how is this global phenomenon impacting the Chinese economy? Given the conditions described above, the sharing economy comes as an outstanding alternative not only to keep China’s economy growing and inline with the innovation tendencies, but also, to provide a sustainable solution to the problems that have been caused by China’s imbalanced growth, therefore engaging every stakeholder from the government, investors, and the Chinese population as consumers. This mix has created a new breed of Chinese entrepreneurs, who are creating startups that have experienced tremendous growth while helping the nation’s economy mend its capitalist model.
One of the sector where significant innovation is taking place is car sharing, which will be one of the five prominent sharing economy sectors, according to PwC. This comes as no surprise given China’s excessive population of automobiles, which create congestions and significant pollution. It is important to note that the government has become a main stakeholder in promoting car-sharing schemes in different cities across China. One of them is Weigongjiao, which rents electric cars manufactured by Chinese automaker Geely. Automotive corporations, such as Daimler, have also reacted by announcing the introduction of its car sharing service Car2Go in Chongqing. Harris (2015), from Fortune reports how the three biggest cities in terms of number of trips are in China. This has spurred competition and given rise to Chinese car-sharing and taxi-hailing apps like Yongche, which has 2 million registered users, and Didi Kuaidi. The enormous size of the Chinese market does not deter these firms from also ambitioning to conquer global markets. According to Forbes (2015), Didi Kuaidi formed an alliance with Ola, based in India, Lyft, based in San Francisco and one of Uber’s arch-rivals, and GrabTaxi, based in Singapore, to partner up and access each other’s fleet on their different locations. The report pointed out that this would enable the alliance to reach out to half of the world’s population. The progress of the car-sharing industry in China is likely to play a key role in reducing gas emissions, as according to PwC, one fully utilised share car takes an average of 17 privately owned cars from the streets.
The Chinese sharing economy evolution has also taken advantage of the rise on the cost of space, particularly in cities such as Shanghai, Beijing, and Hong Kong. Ubiquitous access to mobile has prompted the development of apps that allow increased access to goods and services and reduces the need to own. One of these examples is Hong Kong based startup called Rent-A-Suitcase, which pioneers a simple concept. Instead of owning a suitcase, which can be costly and demand some room to store it, people can access it on-demand by the click of an app. While storing room might not be a problem in suburban North American homes, it is an issue in space-strapped Hong Kong, which boasts some of the highest rent costs on the planet. The start-up mentions that “As space has become tremendously costly in metropolis, especially in Hong Kong, storing a large suitcase at home that would only be used for once or twice a year has become a burden for many families”.
The quest for space does not come without its challenges, though. One of them is understanding local culture and catering their services to the expectations of the local population. Tujia is one of these examples. Known as the chinese AirBnB, Tujia co-founder Melissa Yang relates how the startup differs from AirBnB in an interview with Neelima Mahajan. She explains how Tujia plans to monetize on the 50 million vacant homes that exist in China, and link it to the growing demand for vacations, and how overcoming trust issues has become a huge challenge for Tujia to get further incursion in the Chinese market, together with the expectation on level of services: “I have Indian friends, who told me the same thing as Chinese: when people go on vacation, they like to be served. When my husband and I vacation in the US, it’s easy for us to take out the trash. But in India and China, they don’t like to do that”, Yang told Mahajan, to explain how Tujia has tailored their service around those expectations and manages some of the properties that are listed on the site, as well as inspecting all of them and adding a value chain of service providers to offer complementary services, such as butlers, cleaning, and others. The growth of Tujia has been also fostered by a partnership with Ctrip, China’s largest online travel agency who are investors in Tujia and also advertise their properties on the site, therefore, giving it increased exposure to a broad market channel.
The list of sectors in which the Chinese sharing economy makes its striding presence is constantly growing, powered both by the surge and growth of local startups and the incursion of foreign players in the market. In an emulation of TaskRabbit, companies such as Renren Delivery create a link between the demand for package deliveries and freelancers who act as couriers. Other startups such as Zaih.com connect people to professionals who can provide them with training or advice in any specific skill. If Zaih.com can give service providers the possibility of scaling the reach of their ideas like Skillshare, it could also revamp the Chinese education industry in a significant way.
Overall, the sharing economy in China not only proves to be a sector with high potential for important returns but also with a great possibility to help the Chinese economy take a more sustainable and balanced path towards growth, by conjoining profit with providing solutions to the social and environmental challenges that have been affecting the country. The presence of the sharing economy in China is only likely to grow, attracting and pulling all the stakeholders together towards a common output. The prospects for high financial returns offered by the volume and technology access offered by the populous Chinese market together with the urgency of solving the country’s economic and environmental inefficiencies, can ultimately create a thriving ecosystem that provides China and the world with the sustainable growth it had been looking for, all while increasing the quality of life of its population, and giving our world a deep oxygen breathe.