The streets of Chinese cities have been taken over by fleets of colourful shared bikes that users can hire for less than a dollar a month after paying a deposit. However, some cash-strapped bike start-ups have used this cash to fund operations — against Beijing’s wishes — and hundreds of thousands of consumers have complained after bankrupt groups failed to return the cash.The mass complaints have exposed an easily exploited loophole in China’s growing bike-rental market, one that is being tested in a civil suit filed this week against Mingbike, a Guangzhou-based bike sharer, the first court case of its kind. “Most companies refrain from using deposits to pay for expansion, but we see it in the shared bike space because there is a liquidity and fundraising issue,” said Xue Yu, analyst at IDC, a market research firm. In May, top policymakers, including those from China’s transport ministry and central bank, jointly issued draft regulations that asked companies to distinguish cash flows from deposits and store them in a designated bank account. The express purpose was to ensure users could reclaim the cash if the company failed.
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The Guangdong Consumer Council, a provincial consumer watchdog, filed the Mingbike suit after it received 30,000 complaints from users unable to reclaim a $30 deposit after the group shut down last month. RecommendedChina’s booming bike-sharing sector beset by theftChina’s bike-sharing boom in chartsChina’s bike-sharing bubble bursts as Bluegogo failsOfo and Mobike, China’s two largest bike sharing groups by market share, said they do not use consumer deposits to fund daily operations. The groups have together attracted about $2bn in funding this year alone. Smaller start-ups, such as Mingbike and Kuqi, have struggled to raise the capital to buy and maintain bikes, especially as competition heats up in the over-saturated bike sharing space in China. Consumers have forked out almost Rmb1bn ($150m) in deposits for shared bikes to groups that have since gone bust, according to a report from Ant Financial, the fintech affiliate of Alibaba, the tech company. The figure may underestimate consumers’ exposure. The China Consumers Association, a state-run advocacy, issued a public letter in December demanding Kuqi return deposits of about $45 to each of its 16m registered users — if all users were unpaid that would add up to $720m.