WeWork’s IPO prospectus mentions “China” 173 times – What are coworking spaces really like in China?

WeWork unveiled its IPO filing last week, highlighting “China” 173 times, mostly mentioning the joint venture “ChinaCo” in the prospectus. According to their official website, WeWork opened co-working spaces in 12 Greater China cities, making China their biggest market, only second to the US in terms of number of spaces.

There is a fact we can’t ignore — coworking has become a huge business worldwide.

And it’s not only international companies that are vying for position. WeWork, as a global brand entering China, finds itself in an intense China market competing with more and more local competitors, such as Ucommune, People Squared, UrWork, KrSpace, MIXPACE, and SOHO 3Q.

A July 2019 report estimates Ucommune, a Beijing-based co-working company, is likely to have a $200 million IPO in New York next year. The industry forecasters predict that globally there will be over 5.1 million coworking members in over 30,432 coworking spaces by the year 2022.

But let’s back up for a moment. What is “coworking”? What triggered the explosion of coworking spaces in China? Will the coworking experiment succeed in Chinese society, or is it a short-term fad?

The China Startup Pulse, a weekly podcast about the China tech and startup ecosystem powered by Chinaccelerator, might have an answer. Our host and venture capitalist Oscar Ramos interviewed Yintao Feng, the founder of MIXPACE for his insights about the coworking industry in China.

MIXPACE is a local coworking company which has more than 20 sites in Shanghai and Beijing. In August 2016, MIXPACE received 100 million RMB during A round of financing and in March 2018, during B-1 round of financing received 400 million RMB.

In this article, we summarize the key ideas Yintao Feng shared in the episode. We welcome you to check out the full episode here for more insights from Yintao.

The Founder at MIXPACE 米域 Yintao Feng 冯印陶

Coworking spaces are shared office spaces. People share different facilities and work together even though they are from different companies and working on different projects. The spaces are designed for people to freely share ideas and make connections. Coworking companies offer affordable and flexible office spaces for corporates, entrepreneurs, freelancers, and many label themselves as technology companies.

What makes coworking spaces successful in China?

One of the reasons Yintao mentioned is that urbanization and the fast-growing economy are triggering profound changes in every aspect of Chinese society. More and more small business are rising up to energize emerging industries. These small startups might have tight budgets, but they are still in need of a high-quality working environment. However, to create their own comfortable and well-designed office space is an expense that’s difficult to justify when they are first getting off the ground.

Moreover, nowadays there are more independent workers and freelancers. For them, a traditional working office is not only unattractive, but also might not be available or affordable.

We also have to keep in mind cultural changes. Compared to earlier generations, young Chinese people are very open to trying new things, and aren’t scared of technology. In fact, many have come of age in a hyper-digitalized Chinese society. As a result, many perceive technology as something that makes their lives better.

These young people are gravitating toward new ways of working, yet the large office buildings are still managed in a traditional way. The founders of coworking companies in China, such as Yintao, noticed this gap. As they began to provide creative, modern, and flexible working environments, coworking became a popular and sought-after working arrangement.

The founder of The Naked Group, Grant Horsfield, has an explanation for this phenomenon that is similar to Yintao’s. Horsfield said, “Chinese customers are already at the cutting edge of so much of the work they are in, but the problem is that their places of work are stuck in the past. The challenge is to let them catch up.” The Naked Group was acquired by WeWork for $400 Million in April 2018.

Another driver of the growth of co-working in China is the difficulty of attracting talent and making business connections. The new generation of Chinese workers deal with different types of working relationships in a rapidly changing environment. So having a good working space with many people from different companies working around you creates more chances to get connections and build up your network.

The fundamental idea of coworking is shared facilities. But this doesn’t mean no walls. Chinese coworking space always have both private and shared spaces. Startups tend to have their own offices, but the hot desks are shared.

Having a shared space is important, since community is a key concept for coworking space. In fact, the willingness to form connections drives people to stay in the coworking space.

However, as Yintao explained in the episode, community in China’s coworking spaces is different than in Western cities. This is partly due to the Chinese business culture in which people feel uncomfortable to talk to strangers directly. We need a more direct icebreaker to connect people rather than simply hosting open events to create social touch points. That’s why the role of the community manager is so important in Chinese coworking spaces. They need to be more actively engaged to help with proper introductions.

Flexibility is also of vital importance. Startups want their employees to have the ability to choose when they want to work. And most of them are starting to have higher requirements for comfortable working place. They also want to choose where to work. The model of coworking spaces provide this type of flexibility to employees. People can come and go anytime they want— it’s a 24-hour working environment.

The last keyword for coworking spaces is technology. Since Chinese people are very open to new things, coworking spaces in China have to emphasize technology and smart solutions. This also means that companies which are less technologically inclined are more likely to be in a disadvantageous position. For example, users might prefer the coworking space to have a facial recognition system implemented so that they can be totally hands-free when entering the building. People Squared, a local coworking space where Chinaccelerator and most of our portfolio work, also initiated a facial recognition check-in system to replace the key card in 2018.

However, it’s challenging for coworking spaces to expand in secondand third tier cities in China.

The 2019 China Cities Tier Rankings Report released by the financial media outlet China Business Network (CBN) measures the positions of cities via an overall “economic attraction index” with 5 major indicators, including concentration of commercial resources, the city as a hub, citizen activity, diversity of lifestyle, and city development. In the 2019 report, the new first tier cities include Beijing, Shanghai, Guangzhou and Shenzhen.

We can see the tiering system as a proxy for the development of the city. For professionals, this means that more innovative resources and high-quality business connections are in those first tier cities.

The talent is here. Freelancers are here. Even though many second/third tier cities are encouraging innovation and welcoming startups by giving preferable benefits, the first tier cities will keep their dominant position for a long time.

Another reason brought up by Yintao is that people in the second/third tier cities perceive coworking spaces as a different concept. They see it as a tangible improvement of the office space for the small business rather than identifying it as a new way of working – a structural advancement that mirrors the optimism of the small businesses that inhabit them.

So what’s the future for coworking spaces in China? In a Technode China interview, Yintao summed it up nicely: “In the end of the day, delivering better experience to users by utilizing technology is the must-to-do thing for co-working spaces”.

Blog written by Eva Shi, Communications Manager at Chinaccelerator.

Thanks to our guest Yintao Feng and host Oscar Ramos for the China Startup Pulse Podcast interview.

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