(Yicai Global) Oct. 25 -- China's bicycle-sharing sector has been the subject of significant interest among investors this year, with multiple companies entering the already highly competitive market. However, the market is now shrinking rapidly amid declining capital flows, the Beijing Daily reported yesterday.

There have been frequent rumors that the two leading companies in the market, Beijing Mobike Technology Co. and Beijing Bikelock Technology Co. (Ofo), will merge in the future. Second-tier bike-sharers Bluegogo, run by Tianjin Luding Technology Co., Coolqi Bike, operated by Coolqi Beijing Technology Co., and Xiaoming Bike, run by Guangzhou Yueqi Information Technology Co., have recently suffered capital shortages and are struggling to refund user deposits.

Electric bike sharer Deer Bike Beijing Technologies Co. also officially confirmed its exit from Beijing over the past few days, while smaller players including WuKong Bike, 3Vbike and Ding Ding Bike have shut down operations.

Bluegogo, despite ranking third in the industry, continues to face challenges, including issues related to deposit refunding.

"There are a considerable number of users who requested deposit refunds around the National Holiday," said Zhou Yi, head of public relations at Bluegogo. "We recently increased staff numbers to speed up the process of refunding deposits, and a great number of users have already received their deposits back. We will resume our normal refunding process very soon."

The issues related to deposit refunds are attributable to the firm's failure to obtain new funding, it is currently undergoing a capital shortage, one industry insider suggested. Some media reports indicate that Changzhou Youon Public Bicycle System Co. or Mobike will probably acquire the company.

The bike-sharing industry in China experienced a period of explosive growth between the second half of 2016 to the first half of this year. There have been more than 70 enterprises directly engaged in the practice. With the exception of Mobike and Ofo, bike-sharers have been unable to obtain any new rounds of financing since April this year, amid increased competition and tightened government supervision.

"Bike sharing should ultimately return to the essence of business. The enterprises should be able to make their development sustainable", Han Meiru, a Hellobike executive, said.