By Clay Chandler
November 18, 2017

And so it begins. Chinese media report that Bluegogo, the nation’s third-largest dockless bike-sharing startup, has ceased operations, becoming the first major casualty in a fast-paced tech sector many analysts warn is hurtling towards a reckoning.

Bluegogo was among nearly 30 Chinese startups allowing users to rent bikes with smartphones and leave them wherever they like. The company launched in 2016 with more than $90 million dollars in venture funding. At its peak, Bluegogo claimed 20 million registered users, deployed more than 700,000 bikes, and launched operations in San Francisco and Sydney as well as China.

Bluegogo’s 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 this week, when Chinese social media erupted in complaints about the company. Users fumed that the Bluegogo app no longer unlocks bikes and that the company isn’t responding to requests for refund of their deposits. Chinese media descended on Bluegogo headquarters in Beijing to discover offices locked and abandoned. Chinese press report that the company dismissed staff on Wednesday. multiple senior Bluegogo executives confirmed that they have left the company. According to several reports, Bluegogo owes $300,000 in office rent. A Bluegogo bike supplier told the Global Times the company owes it more than $1.5 million.

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.

China Money Network reports that Bluegogo raised $58 million in February led by an aptly named Beijing-based venture fund Black Hole Capital, and Smart Xintong, a Shenzhen-based healthcare equipment developer. The investments valued Bluegogo at $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 sectors two giants—Mobike, backed by Tencent Holdings, and Ofo, backed by Alibaba Group—have each reached raised roughly $1 billion in funding and are widely tipped as the industry’s final victors.

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

There were clear signs of lax management at Bluegogo. The company ran in to trouble with a bizarre June 4 ad campaign that replaced some of the bike icons on its app with icons for tanks, offering prizes to users who bikes depicted by tanks. The promotion coincided with anniversary of the 1989 Tiananmen Square massacre when tanks rolled through the streets of Beijing to suppress democracy protests.

But in China’s bikes-sharing sector, even well-managed ventures face an uphill climb. It has long been clear that the sector is a bubble, with far too many players backed by far too much venture funding chasing far too little profit. A shakeout was inevitable. The real question is whether Bluegogo’s collapse portends a similar consolidation in other Chinese Internet sectors.

Enjoy the weekend!

Clay Chandler
@claychandler
clay.chandler@timeinc.com

Politics and Policy

The “unrivalled helmsman”. Chinese state media Xinhua News published a glowing 8,000-word profile of President Xi Jinping on Friday, calling him a “great lingxiu,” a reverential appelation not used since Mao. Titled, “Xi and his era,” the article also offered rare details into Xi’s private life and his public ideology and projects, including the  “One Belt, One Road” scheme and economic and military reforms. Quartz 

Extra screening. US-China Economic and Security Review Commission has advised Congress to make it mandatory for all staff of Chinese state-run media outlets in the United States to register as foreign agents with the U.S. government as their activities may contribute to Chinese intelligence gathering and “information warfare.” The commission’s annual report also recommended that Congress block the acquisition of critical technologies and infrastructure with national security risks by Chinese state-owned enterprises and sovereign wealth funds. South China Morning Post

Detention without trial. A new national supervision law in China, released in draft on November 6 and expected to be implemented in March, will give the newly established anti-corruption super body, the national supervisory commission, special legal powers to detain anyone suspected of corruption for months without access to lawyers in that time. South China Morning Post

The big move North. Chinese president Xi Jinping sent a special envoy to Pyongyang on Friday, amid increasing pressure over North Korea’s missile program. The dispatch of a senior diplomat comes after Donald Trump’s call on China on his two-week Asia trip to apply more diplomatic weight on Kim Jong-un to curb his nuclear ambitions. It promptly triggered an approving tweet from Trump, who called it “a big move.” CNN 


Trade and Economy

Trading health. New York Stock Exchange-listed healthcare firm Cardinal Health will sell its China business to Chinese pharmaceutical manufacturer Shanghai Pharmaceuticals Holding Co. For $1.2 billion. The sale includes Cardinal Health’s pharmaceutical and medical products distribution business in China but not it’s remaining business in China, including its lately acquired patient recover business Cordis, medical sourcing team and other functions. China Money Network 

VW’s electric driveVolkswagen AG plans to spend more than $12 billion by 2025 to manufacture a range of new-energy vehicles in China. The German automaker and local partner Anhui Jianghuai Automobile Group will produce 40 locally made low-emission vehicles, starting from the first half of 2018. Sales will start in the second half of next year. Bloomberg 

Toyota, too. Toyota Motor Corp., meanwhile, will introduce electric vehicles in China from 2020. The Japanese car manufacturer is also considering producing Toyota-branded battery-powered autos developed by its Chinese partners to conform to Beijing’s tightened regulations on zero- and low-emission vehicles that will take effect in 2019. Reuters 

Knocking back a drink. China’s official media agency Xinhua News made the unusual move of singling out Kweichow Moutai Co., saying that the shares of China’s largest liquor maker should rise at a slower pace. The commentary caused shares of the Shanghai Stock Exchange-listed company, which Goldman Sachs has been very bullish on, to plunge be as much as 5.8 percent, their steepest decline in two years. Bloomberg  



Technology and Innovation

An ‘orderly’ Internet. Never mind that China ranked at the bottom out of 65 countries for press freedom on a list published by U.S. NGO Freedom House. The Cyberspace Administration of China, China’s top cyber authority responded that the internet must be “orderly” and urged the global community to join China in fighting fake news and cyber rumours. Reuters

Tencent TV. Chinese tech giant Tencent plans to invest $3 billion to amass user-generated Youtube-style videos. After a spell of content acquisitions, from music from leading record labels to streaming rights, the investment by the company behind social messaging and payment app WeChat will focus on three areas under their “3 x 10bn” plan: revenue-sharing with content creators, providing protection for intellectual property and start-up spaces and boosting traffic. Financial Times 

Amazon Web Services sells China infrastructure. Amazon.com Inc will sell off the hardware from its public cloud business in China to local partner Beijing Sinnet Technology Co Ltd, in order to comply with new Chinese surveillence and cross-border data transfer laws that require firms to store data locally. Amazon Web Services clarified that the sale would only involve certain physical infrastructure assets and that it would still own the intellectual property for its services worldwide.” Reuters 

Geely buys US flying car company. Chinese carmaker Zhejiang Geely Holding Group, the parent company of Volvo Cars, will acquire the operations and assets of Terrafugia Inc., a US-based flying car manufacturer behind the Transition, a two-seat flying car that can travel up to 100 miles per hour in the sky. Terrafugia said the deal has been greenlighted from regulations, including the Committee on Foreign Investment in the United States (CFIUS). China Money Network 

Summaries by Debbie Yong. @debyong
debbie.yong@timeinc.com

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