Ofo’s plight won't hinder development of Chinese sharing economy: analysts

An Ofo customer rides past piles of the company's bikes in Xiangyang, Hubei province. [Photo by Guo Qi/For China Daily]

Beijing-based bike-sharing company ofo said on Wednesday that it has been bearing "significant debts" due to incorrect judgment on changes in the external environment over the past year, adding that the company has been under "great pressure and struggle over the past few days."

It is the first time the company officially admitted to having "significant debt" and making "incorrect judgments," despite media reports that have said the company is facing a liquidity problem.

The statement came after hundreds of customers lined up outside the company's headquarters in Beijing's chilly winter to get their deposits back, only to leave empty-handed and angry.

It was estimated that ofo's total refunds could exceed 1 billion yuan ($145 million) as of Wednesday, with more than 10 million refund applications, media reports said.

"To return users' deposits, pay suppliers' arrears and maintain company operations, we have to make the most of every penny," Dai Wei, founder of ofo, said in a staff letter on Wednesday. "I hope every staff member of ofo will be responsible for every penny we owe and for every user who has supported us."

However, the statement seems to have re-ignited the anger of some users. "I don't care about his [Dai's] apology, I want to get my money back," a Beijing-based user surnamed Long told the Global Times on Wednesday.

Long said he has been asking for a refund of his deposit for almost two months. When he logged into ofo's app on Tuesday night, he was No.10,200,873 in line.

"It's a fraud," he said, noting that the app also shows that there is proper management of users' deposits. He paid 99 yuan ($14.36) as a deposit.

The bike-sharing platform's deposit was at first set at 99 yuan, but later it was raised to 199 yuan.

Ofo's strategy of competing by scale instead of innovation led it to this point. It can't even pay refunds by mortgaging its bicycles, Zhu Dajian, the director of the Sustainable Development and New-Type Urbanization Think Tank at Tongji University, told the Global Times on Wednesday.

"When its rival Mobike shifted its focus toward new measures to manage dockless bikes like detailed GPS-data analysis, ofo was putting as many bikes as it could into cities, which reached the limits of local transport governance," he said.

China's Didi Chuxing and Alibaba's Ant Financial have been considering an ofo buyout, media report said in August. "Considering this significant amount of debt, it is likely no one will take over this struggling company. It will go bankrupt for sure," Zhu added.

Ofo's dilemma has also sparked concern over the once prosperous Chinese sharing economy, with some Chinese netizens saying that "Ofo's case symbolizes the death of the sharing economy."

Industry analysts said that China's sharing economy, which has provided great convenience and contributed a lot to the country's overall economy, still has great growth potential.

"The failure of ofo could not be interpreted as the failure of China's sharing economy," Zhu said. "It's an individual case showing that the tech start-up made bad decisions in its rapid expansion, which should not affect the future development of this booming economy," he added.

China's sharing economy will continue to grow at an annual rate of over 30 percent over the next five years, according to a report from the State Information Center in February.

A Beijing-based ofo user surnamed Li told the Global Times on Wednesday that he is a strong advocate of the sharing economy, since he has greatly benefited from it.

"It provides us with cheap rides, and also solves the 'last mile' problem from the subway to my office. So the 99 yuan deposit, which is not a big deal to me, could just be viewed as my payback to the company, as well as my contribution to China's sharing economy," Li said.