Falling Tides of China’s Internet Industry in 2018 — Don’t Go Gentle Into That Good Night

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“It was the best of times, it was the worst of times…” — Charles Dickens

The year 2018 witnessed the ebb and flow of many Internet industries in China — destined decline after a period of flourishing.

To be honest, every one has the same story. The common denominator between them is the barbaric growth without sufficient regulation, and excessive trust and a “laissez-faire” attitude in human nature. It seems like the virtual prosperity piled up by capital and over-confidence has high risks to burst at any moment.

E-commerce

As for e-commerce, it’s been a special year for Alibaba’s Taobao, with Jack Ma stepping down as CEO and the ten-year anniversary of the double eleven global shopping festival of unparalleled scale.

Pinduoduo, the rising e-commerce platform targeting lower-end consumers, has been the name on everyone’s lips this year. It is the perfect embodiment of unhindered growth. It also gave birth to the buzzword, “consumption downgrade” during 2018.

Pinduoduo (source: woshipm.com)

However, the era of the e-commerce industry experiencing free growth is over. The promulgation of the new e-commerce law on August 31 marks the end of the monopoly of Taobao, “stricter regulation may lead to a fading market dominance of Taobao.”

SEE ALSO: How Would the New Chinese E-commerce Law Change Taobao?

A decline in business, or rather a debubbling process of the industry is inevitable. Under the new regulation, all the items sold on the platform should comply with related intellectual property laws and regulations. Also, it makes it easier for consumers to file lawsuits against both the sellers and the platform for any unresolved disputes.

Even Jack Ma expressed his concerns for the new law, “the e-commerce law should be more international and forward-thinking. I hope it could add some content that promotes e-commerce development, but this law is immature.”

Either way, the new regulation is coming into effect on January 1, 2019. By that time, vendors selling replicas, fakes, or other knock-offs of any kind on Pinduoduo will probably have a hard time maintaining their businesses.

Cryptocurrency

2018 has witnessed the prosper and decline of the blockchain industry. People who literally know nothing about blockchain started to profit from bitcoin speculation. The general crowd who put their dreams of great fortune overnight into ICO (Initial Coin Offering) saw the burst of the bubble, just like the irrational exuberance during the subprime crisis of America. Ironically, Bitcoin was born amidst the 2008 world financial crisis, which was meant to avoid systemic risks.

Bitcoin (source: finance.sina)

The drastic drop in cryptocurrency value made winter even more brutal for Bitcoin practitioners. Ever since 2018, the price of Bitcoin has been dropping, presently only $3578 compared with the peak level of $20000 in 2017. A media friend working for an online blockchain community told me that Bitcoin has dipped to the level of the stone ages and that apparently they don’t have much to do lately.

The cruel winds of the bitter winter also blew hard against mining companies. On Dec. 26, insiders disclosed that Bitmain, the Beijing-based company that operates two of the largest mining pools for Bitcoin—BTC.com and Antpool, initiated a massive layoff.

Bitmain (source: 36kr)

According to media reports, the proportion of layoffs was higher than 85%. Only 300 “survived” out of over 1000 employees in the Beijing headquarters, and other domestic and foreign branches such as Wuhan and Israel have been wiped out completely. Micree Zhan, CEO of Bitmain, refered to this layoff as the “nirvana” of Bitmain.

It’s not hard to speculate the reason behind this since, according to its prospectus, up until the end of June this year, miners (of Bitcoin) sales account for 94.3 percent of its total revenue, which means the price of Bitcoin determined the rise and fall of the company.

However, the fall of Bitcoin doesn’t necessarily mean the decline of the whole Blockchain industry. Some believe that the dehegemonizing of Bitcoin is a possible way out. It is also predicted that Security Token Offering (STO), which allows companies to tokenize any tangible assets, will become a more regulated approach of financing, compared with ICO.

Bike-sharing

Bike-sharing is honored as one of the four great new inventions of China, together with high-speed rails, mobile payments and e-commerce. But this year marks the downfall of several bike-sharing startups.

The idea of bike-sharing began from college campuses, with a bright vision to create convenience for short-distance commuters. Commuters gave them cute nicknames like “little yellow bikes”, or “little blue bikes”. Back in December 2016, the rivalry between ofo and Mobike, the two largest bike-sharing companies, had just begun. More players join the battlefield in a short time.

ofo bikes (source: time out Beijing)

However, two years later, one is at the brink of bankcrupcy and liquidation, while the other, though acquired by Meituan and backed by huge capital, is still struggling to turn a profit. The latter being the few survivors of the industry.

Talking about ofo, the scene of anxious crowds lining up to get their deposits back has become the talk of the town. Some teased that they would have to take five bicycles to sell for scrap metal to offset the deposit.

SEE ALSO: What Killed ofo — The Fall of a Unicorn

In second and third-tier cities, Hello Bike is gradually taking ground, with a more user-friendly no-deposit model and simply better quality bikes. News came that the parent company has just completed a new round of financing that’s worth 4 billion yuan, which stands as a light of hope.

hello bikes (source: 凤凰财经)

Unmanned Shelves

In 2017, the unmanned shelves business popped up everywhere like pollen in Spring.

According to statistics, by the second half of 2017, unmanned retail has flooded into over 50 companies, attracting altogether over 3 billion yuan. Guo Xiaomei, an unmanned shelf company is a big player backed by Alibaba (its founder Min Limin is a former president of Juhuasuan, Alibaba’s sales and marketing platform for flash sales).

unmanned shelves (source: iresearch)

Official data shows that by the end of last year, Guo Xiaomei has expanded to over 59 cities around the country, serving as much as over 80,000 companies, with an average daily trading volume that surpasses millions.

According to media reports, this April, Guo Xiaomei’s new round of funding has run aground due to Alibaba’s internal disputes. However, with an Alibaba genes, the company now diverted its focus to a new “Pinduoduo” model that suits to office scenarios.

The exponential growth brought by the internet and huge influx of capital has the characteristics of what we call as irrational expansion, the speed of which has drastically surpassed traditional retail. The craze usually leaves as quickly as it comes.

Difficulties in financing and high loss rate sentenced them to death. According to 36Kr, in August 2018, Allday Convenience, an unmanned convenient store based in Hunan province, was already on its way to closing down, and finally bit the dust when an investment institution refused to finance it.

In our office space in Beijing, the brand of unmanned shelves has been altered for numerous times. A few months before, it’s the Hami Technology. You could simply scan the code to open these shelves and grab whatever afternoon snacks and drinks you’d like from it, pay for them, and walk away. However, a business model like this is in fact very problematic as the vendor cannot ensure timely payment. Hami Technology is now officially bankrupt, with their snack shelves left there for people to take for themselves.

What replaced it now is yet another vendor named Bianlifeng. You could only take snacks from the smart vending machines after you’ve paid for the previous ones, which somehow eases the losses. Traceable code scanning and smart supervision also keeps consumers under control.

SEE ALSO: Unmanned Shelves Are Dead, Will Smart Vending Machines Survive?

P2P Lending

According to Investopedia, Peer-to-peer (P2P) lending is a method of debt financing that allows individuals to borrow and lend money without the use of an official financial institution as an intermediary. Its initial vision is to meet the financing demands for individuals and small and micro enterprises, lowering the threshold for lending.

P2P lending (source: sohu)

According to the 2018 Monitoring report of P2P industry, up until June 30, 2018, there are altogether 2835 online P2P platforms in operation in China. During the first half of this year, 36 new P2P platforms emerged while 721 died out.

Their dying out can be roughly classified into the following reasons: inaccessibility to the website for a long period of time, zombie websites (no updates for a long period of time), voluntary exits, and those under investigations.

The National Internet Financial Risk Analysis Technology Platform has detected over 2000 P2P platforms that are suspected of self financing and self-insurance, campus loans and other illegal business, false publicity, inductive publicity, overseas servers and high yields. Apparently, a lack of regulation and high risks led to its downfall.

Some say that P2P is merely illegal fundraising in disguise. The dying out trends are the signs of a do-over.

Featured photo credit to zczj.com

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