PERHAPS there is no term as popular, yet controversial, as “sharing economy” to be the buzzword for 2017 in China. Just as the first sentence in A Tale of Two Cities by Charles Dickens, “It was the best of times, it was the worst of times” – it also befits the state of the sharing economy in 2017.  

The sharing economy has gained widespread popularity not only because of the capital flocked in the sector, but also because of the support it has gotten from the government. According to China Sharing Economy Development Report 2017, released by the State Information Center (SIC), the trade volume of the sharing economy reached RMB 3.45 trillion (US $532 billion) in 2016, and is expected to maintain a 40 percent growth in the coming few years. It was even written into the 2016 and 2017 Government Work Report.

But the development trend hit the brakes in the latter half of last year, even if temporarily. Incomplete statistics show that, last year, 27 sharing economy start-ups went out of business, including seven shared bicycle enterprises, seven shared power bank enterprises, four shared apparel enterprises, three shared toy enterprises, and three shared automobile enterprises. In addition, one third of the failed sharing economy companies lasted less than one year, prompting the media to call it “crematorium of start-ups,” and many people to question the existing model of the sharing economy.

Ideally the sharing economy should be a process of Pareto improvement – a neoclassical economic concept, which means an economic action that harms no one and helps at least one person. In the context of sharing economy, it means people and enterprises sharing idle resources through information and telecommunication technologies to increase utilization efficiency and cut costs of individuals as well as society as a whole.

But the existing sharing economy business model deviated from this win-win principle. No wonder many question whether it can even be called “sharing.” Take shared bikes, the most popular sharing economy business in China, as an example, instead of using existing idle resources, shared bike companies produced and purchased huge numbers of new bicycles to put them into the market. Their business model is based on customers paying the lease for the bikes owned by the companies. Such a business model should be called “lease economy” rather than sharing economy, not least because it has created as many problems for society as the benefits it has offered.

According to the SIC statistics, till July last year, about 16 million shared bicycles were in operation nationwide. They have caused many urban problems, such as illegal parking and inappropriate scrap disposal, because more than the needed numbers of bicycles were introduced to cities. Many media reports said that hundreds of thousands of scrapped shared bikes had piled up in the suburb wasteland, which they called the “graveyard of shared bikes.”

Although many major cities have restricted companies from introducing new shared bikes, the companies ignored the regulations to bring in new bikes to compete with rival companies and grab a bigger share of the market.

The pseudo sharing economy failed to activate idle resources to increase efficiency, and instead caused social chaos and tremendous waste of resources. Their economic endeavors can hardly be described as sharing economy, which is supposed to improve social welfare. It is more like naked competition to acquire market monopoly.

Worse, shared bike companies can embezzle customers’ deposit. In September 2017, Kuqi, a shared bike company operating in more than 10 cities, pocketed several hundred million yuan of customers’ deposit and unilaterally blocked the deposit refund channel online and offline. Such scandals undermine the development of the sharing economy.

But despite great challenges, the sharing economy still has great potential to develop into a successful, win-win business model. In fact, the current chaos offers a great opportunity to reshuffle the industry, and revert to the socially and economically beneficial-for-all business model. Only by following a good, sustainable business model can the sharing economy benefit society.