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How the collapse of China's housekeeping platforms hurt workers
Hundreds of thousands unpaid after owners left with money of investors, clients
asia.nikkei.com
Hundreds of thousands unpaid after owners left with money of investors, clients
No matter the business model, all housekeeping service platforms spent heavily on marketing and offered large discounts to build market share. (FeatureChina via AP Images)
LIU RAN and DENISE JIA, Caixin
The recent collapse of several Chinese housekeeping service platforms left hundreds of thousands of workers unpaid, mostly women from poor rural areas, as the owners absconded with investors' and clients' money.
Guanjiabang, a leader in the industry that raised several rounds of venture capital financing, ran into operating problems in October 2019 as its rapid expansion outstripped founder Fu Yansheng's management capabilities. While its business registration hasn't been canceled and no records of bankruptcy or liquidation filings could be found, the company is currently listed as being in "abnormal operation." Tiantu Capital withdrew from involvement and wrote off its 50 million yuan ($7 million) investment as a failed project, Caixin learned.
Haoyun Mother Life Service, a platform providing nannies for new mothers, hit a cash crunch in February and fell behind on payments to workers before its whole management team quit. In March, partners of Lai Ren Bang, a housecleaning service platform, ran off with clients' money. A new owner refused to provide services to former clients who already had paid the previous ownership.
In July, Shenzhen Qingsongdaojia Technology, once a top-three housekeeping service platform, suspended operations, leaving hundreds of millions of yuan in payments due to clients and 5,000 workers. One of its investors is famous Hong Kong actor Eric Tsang Chi-wai.
The businesses were hobbled since 2020 by COVID-19 outbreaks in many cities. But the industry's struggles also reflect strategic mistakes, such as wild expansion in the startup stage and lack of effective management systems.
Many of the platforms are scaling back and exiting some cities. Swan Daojia, a maid and home-maintenance service provider backed by China's Craigslist-equivalent 58.com, planned a U.S. initial public offering in July 2021 but quickly scrapped the plan. Company founder Chen Xiaohua said the pandemic greatly affected performance.
As the companies foundered, workers -- mostly women from rural areas -- were left unpaid, with no way to collect their wages. After Guanjiabang fell behind on payments to workers in late 2019, many of them sued the company or filed complaints with local governments, to no avail.
Guanjiabang representatives never appeared in court, and plaintiffs won their lawsuits. But the company has no money to settle court-ordered payments, several plaintiffs and their lawyers told Caixin.
The court could not force Guanjiabang founder Fu to pay workers because there is no property under his name. But several plaintiffs told Caixin that they know Fu registered a new company under someone else's name. A former executive of Guanjiabang set up new housekeeping service platforms with Fu acting as an adviser.
Guanjiabang and Wangguanjia were set up by former Guanjiabang executives, said one former Guanjiabang worker who was offered work for the new companies. "Isn't this asset transfer?" the worker said.
Feverish expansion
Housekeeping service platforms operate using three models. One is acting as an information-matching platform that charges a percentage of the amount clients pay housekeepers, usually working out to more than 8%, or a month's pay over a year. Swan Daojia operates on that model.
Other platforms, such as Guanjiabang and Qingsongdaojia, sign contracts directly with service workers and provide training. In the third model, platforms collaborate with other lifestyle platforms, such as Meituan, Eleme.com, Douyin and Kuaishou.
No matter the business model, all platforms spent heavily on marketing and offered large discounts to build market share. Swan Daojia spent 1.5 billion yuan on marketing from 2018 to the first quarter of 2021, resulting in a cumulative net loss of nearly 2 billion yuan during that period. Its customer acquisition costs climbed 70% over three years.
Qingsongdaojia offered home cleaning for 29.9 yuan to attract customers, but it paid cleaners at least 35 yuan for each house. From 2014 to the first half of 2018, the company recorded net losses of 137 million yuan. After 2018, the platform could no longer obtain financing from investors.
Lack of supervision
Meanwhile, doubts were raised about some platforms' management. Swan Daojia was reportedly providing fraudulent background information on nannies. Some nannies were found to abuse babies, according to news reports.
Platforms often require clients to pay for half a year or a full year's services in advance, but they usually pay workers only after the work is complete. The tutoring and long-term apartment rental industries previously exposed the risks of such prepaid models.
As part of a sweeping overhaul of the tutoring industry, many local governments were required to tighten supervision around rules on how tutoring companies collect tuition fees. Some measures were taken, for example, to require the establishment of custody accounts to hold tuition payments.
Some financial regulators also suggest that use of the digital yuan, known as the e-CNY, could address the payment problem. In July, Bank of Communications signed an e-CNY prepaid tuition custody service agreement with a Beijing-based English training company.
Under such digital yuan-based custody models, consumers' prepaid funds are stored in personal digital wallets and are released only as services are completed. This effectively defuses the risk that business owners will vanish with customers' funds, said Mu Changchun, the head of the central bank's digital currency research institute.
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