CEO Daily: Saturday, July 15, 2017

The concept of bike sharing has seized the imagination of global tech investors lately as a host of Chinese bike sharing ventures take their turbo-charged business models global. Mobike recently launched operations in Singapore, Japan and Manchester and is reportedly coming soon to Washington D.C. Arch-rival Ofo has rolled out in Singapore and Cambridge, England and vows to have operations in 20 countries outside China by the end of the year.

Can China’s bike sharing behemoths conquer the world?

In pondering that question, it helps to remember that bike sharing is an idea that was not made in China. The French city of La Rochelle created one of the first successful bike sharing programs in the 1970s. Cities in Denmark, the Netherlands, the United Kingdom experimented with community bike schemes throughout the 1990s. In the United States, Denver introduced the first citywide bike sharing program, called B-cycle, in 2010. About 60 U.S. cities now run bike sharing programs. The National Association of City Transportation Officials estimates the number of rides on U.S. bike sharing services–including Boston’s Hubway, Chicago’s Divvy, Washington D.C.’s Capital Bikeshare–topped 28 million last year. New York’s CitiBike program, the nation’s largest, provides more than a million rides a month.

If anything, the Chinese have come late to bike sharing. While bikes have been a crucial mode of transport in China’s cities since the Mao era, ridership declined steadily after the 1990s as China’s prospering middle class commuters traded up for passenger cars. That trend has been reversed only in recent months thanks to frantic competition among about 30 privately funded bike sharing startups, none of them launched before 2015.

But the power of those fledgling ventures is formidable. Consider the industry’s two heavyweights: Mobike (whose investors include Tencent, Foxconn, Singapore’s Temasek, Warburg Pincus and Sequoia Capital), and Ofo (backed by Alibaba, ride-sharing giant Didi Chuxing and Russia’s Digital Sky Technology). Both companies claim valuations in excess of a billion U.S. dollars. On peak days each now provides more than 25 million rides–almost as many as all the American bike sharing services put together provided all last year.

How did bike sharing in China get so big so fast? It helps that China has more people than the U.S., and that China’s cities are far more densely populated. But the critical factor is that unlike the U.S. and Europe, China’s brand of bike sharing embraces capitalism red in hub and spoke.

In U.S. cities, most bike sharing programs are run by local, non-profit organizations. Some are publicly owned, some are public-private partnerships (like B-Cycle), and some are fully private (like CitiBike). But all work in close partnership with city governments, and have broader goals than turning a quick buck. In communist China, bike sharing has been left to private companies juiced up with capital from homegrown tech giants and American V.C.s. The result is a bike sharing boom in which everyone seems hellbent on global domination and monster IPOs.

A second difference is that American bike sharing programs are based on docking kiosks, while in China bikes can be picked up and abandoned anywhere. Dockless bike sharing is a lot more convenient for riders, but creates chaos on city streets (as anyone who’s been to China lately can attest). Still, it’s a curious role reversal: China’s approach to bike sharing favors growth and disruptive innovation, where the U.S. has opted for stability and control.

Should U.S. cities embrace the Chinese model? One can imagine conservative and liberal justifications for doing so. Shouldn’t city governments get out of the bike sharing business? Wouldn’t welcoming in the likes of Mobike and Ofo extend the benefits of bike sharing to a larger number of people faster at lower cost? But it’s also clear Chinese challengers would undercut local legacy programs, and wreak havoc on existing investments in bikes and docking stations. And who wants abandoned bikes clogging public spaces or piling up on private property?

This smart analysis in The Information explores the complex politics of the U.S. bike sharing market in detail, noting that “the potential tension between cities and venture-backed businesses has echoes of the emergence of ride-hailing services like Lyft and Uber, which tore into the business models of the regulated taxi industries in most cities.” Sounds like Chinese companies rushing to enter the U.S. market face an uphill climb.

Technology and innovation

Will China's VPN crackdown kill of startups? Days after Bloomberg reported Beijing had ordered the nation's three state-owned telecommunications providers to ban access to virtual private networks after February 1, the Ministry of Industry and Information Technology appeared to backtrack. In a statement posted on a government-controlled news site, the MIIT said the new rules applied only "unauthorized enterprises and individuals' lacking a proper license. The statement, which left unclear who would be considered "authorized" and who not, did little to reassure entrepreneurs, foreign executives or global investors, and raised questions about the regulations' impact on China's startups. Bloomberg

Apple, bowing to new cybersecurity rules, opens new data center in Guizhou.  The US tech giant’s data center in southwest China will be operated in partnership with a local data management company. Previously Apple previously stored data of some China’s residents in local servers. Under the new agreement, Apple will turn over to its local partner responsibility for running its China data center, managing country sales and responding to legal requests for data from the government.  Amazon, Microsoft and IBM have similarly formed partnerships with Chinese companies.  New York Times

Dutch designer Daan Roosegaarde signs partnership with Ofo to develop smog-eating bikes. It's not as crazy as it sounds. Daan, who's a member of the Brainstorm Design global advisory council, is the mastermind behind smog-eating towers deployed in Beijing that transform air pollution into jewelry. Wired

Politics and policy

Beijing bans candle emojis after death of Liu Xiaobo. As the world mourned China’s outspoken champion for democracy, Chinese government censors scrubbed social media of tributes to the 61-year-old political prisoner, who died of multiple organ failure in a Shenyang hospital earlier this week. Liu was jailed in 2009 on charges of “inciting subversion against state power” after he helped pen a petition calling for multi-party democracy in the Communist Party-run country. The Chinese government has ignored pleas to release him for overseas treatment and to free his wife from house arrest in Beijing.  Tech in Asia 

Hong Kong expels pro-democracy leaders from legislature. The Hong Kong courts ruled Friday to strip parliamentary membership from four prominent pro-democracy leaders, including popular student protest leader Nathan Law on the grounds that they had improperly taken their oaths of office in October. None of the four advocated independence from China, though they did either alter their oaths, add political comments or brandish props during the ceremony. The cases were part of a push by former leader Leung Chun-ying to purge as many as 10 pro-democracy legislators from the 70-seat Legislative Council, and comes less than a fortnight after Chinese President Xi Jinping said on a visit to Hong Kong that challenges to Beijing’s authority will not be tolerated. Bloomberg

Trump picks China critic for trade representative. The White House nominated Dennis Shea, vice chairman of a congressional committee that has often condemned China, as deputy U.S. Trade Representative. Shea will report to another China trade hawk, USTR Robert Lighthizer. Reuters

In Case You Missed It

Under pressure to cut debt, China's Wanda is dropping its ambitions in tourism FORTUNE

China's bid to curb its booming housing market has only made it hotter WALL STREET JOURNAL

China says 'China responsibility theory' on North Korea has to stop REUTERS

Canadian nursing home deal spurs questions about Chinese money THE NEW YORK TIMES

Business, commerce, trade and finance

China revises rules for calculating GDP. The statistics bureau declared Friday that it has changed its methods for tallying economic output to reflect contributions from healthcare, tourism and "new economy" sectors. The change raised 2015's total GDP by a little over 1% but left the annual growth rate unchanged at 6.9%. The government will announce 2nd quarter GDP results on Monday. It's not clear whether the new rules will affect that data. Reuters

Will November bring China's "Lehman moment"?  Banking analyst Andrew Brown argues that Chinese regulators risk precipitation a significant "liquidity event" in the Chinese banking system unless they relax a November 30 deadline accelerating enforcement procedures against a series of prohibited accounting practices. South China Morning Post

Chinese overseas investment plunges 46% in first half of 2017. Beijing's tighter capital controls are having the desired effect. South China Morning Post