I first saw this program at work in Geneva, Switzerland. In China, I've seen public bicycles available in Shenzhen, Fuzhou and Hangzhou. The idea seemed to work quite well down south, and I'm sure the local government was canny enough to see how it was going elsewhere before introducing it here. The only downside that I can see is that the local bicycle market will likely take a hit.
I'm quite sure it must have something to do with the recent problems with traffice and polution that are now plaguing the country. A few years back I remember reading that big cities like Beijing were banning bicycles. Now they're bringing them back... Oh, irony.