Bicycle makers keep healthy pace

Despite hilly terrain, Chinese manufacturers say renewed domestic interest in cycling keeps them optimistic

China, the erstwhile kingdom of bicycles, has seen a revival in the fortunes of two-wheeled travel but in a much more complex way. Far from being simply standard transportation for the masses as it was prior to the 1990s, Chinese-made bicycles have gone through a boom-and-bust export cycle, then discovered renewed interest at home. It's a market that is now much more sensitive and divided into niche products, including higher-end equipment aimed at the fitness and recreational markets.

In 2013 alone, 100 to 200 new brands rolled into the domestic market as demand grew, says Qiang Jianping, executive of Merida Bicycle (China) Co, a branch of the Taiwan-based global company and one of China's top bicycle producers.

But Qiang says a shakeout is taking place this year as more speculative companies shut down due to lack of quality products and comprehensive after-sales services.

"The demand for bicycles, especially for sports and outings, rose sharply, but it was still outpaced by production," Qiang says. "The market reached a ceiling last year and we expect it will cool down in the next one to two years, then come back to a sensible level."

In the first five months of this year, China produced 24.17 million two-wheeled bicycles, a 1.9 percent rise year- on-year, according to the Ministry of Industry and Information Technology. Production dipped 0.1 percent year-on-year to reach 5.15 million units in May.

Ups and downs

Shenzhen developed into one of China's three major bicycle manufacturing centers in the 1990s, when investment from Taiwan poured into the country's first special economic zone, bordering Hong Kong, to set up bicycle factories.

"The Taiwan-funded factories assembled bicycles, or did OEM (original equipment manufacturing) for foreign brands. At that time, almost all the products supplied foreign markets," says Wang Yipin, secretary-general of the Shenzhen Bicycle Association.

To a greater degree than the other two big bicycle manufacturing centers - the Yangtze River Delta area in East China and around Tianjin in North China - manufacturers in Shenzhen focused on making mid to high-end bicycles, such as mountain, cross-country and racing bikes, she notes.

By 2003, Shenzhen's export-oriented bicycle production was booming. In 2005, roughly 70 percent of the mid to high-end bicycles that China supplied to global markets were made in Shenzhen, government figures show.

The city had more than 200 assembly factories and bicycle parts producers, of which 90 percent were financed by Taiwan.

The city's annual production capacity reached 10 million units in 2005, of which 80 percent were exported with an aggregate value of more than $800 million (598 million euros) a year, customs figures show.

The government then started planning what was to be the nation's largest industrial park for bicycles. The park was expected to cost 3.5 billion yuan ($566 million) and aimed to attract 30 top bicycle manufacturers including world-leading brands. Output of more than 10 billion yuan was anticipated upon completion.

But the plan was shelved when the global financial crisis swept across major Western markets in 2008, dramatically slowing demand.

Many bicycle manufacturers closed down or moved out of Shenzhen to less-costly cities such as Dongguan, Huizhou or Foshan in the province, according to Wang Yipin.

"Some bicycle companies sold land to survive," she says.

The crash also left a deep impression on Qiang. "More than 90 percent of Merida's production in Shenzhen was exported in the 1990s, but now the percentage has dropped to 60 percent," he says.

Merida did not have domestic sales in mind when it built its Shenzhen factory in the early 1990s since overseas orders kept its workers busy, according to Qiang.

But as exports declined, the industry discovered domestic demand was growing, riding on the fervor generated by the 2008 Summer Olympic Games in Beijing.

China, once home to the world's biggest population of bicycle riders, had seen pedal power gradually replaced by cars, motorcycles and scooters.

"When bicycles were redefined as a tool for fun and recreation, we saw rising demand from the domestic market," Qiang says.

"An increasing number of Chinese people, especially those in first-tier cities like Beijing, Shanghai, Guangzhou and Shenzhen, discovered that riding a bicycle could be fun and healthy," Qiang says.

The company sold about 200,000 Merida-branded bicycles in the mainland in 2008, and that number soared at a growth of 30 to 50 percent over the next five years to reach 1.1 million in 2013, ranking it second in the mainland market to Giant, another brand from Taiwan.

After setting up a sales headquarters in Shenzhen in 2000, Merida's stores expanded to 2,200 across the country by the end of last year, according to company figures.

Local company Chuang Xin Wei also made a change in 2008. After completing original equipment manufacturing for European bicycle brands for a decade, the company acquired a 100 percent stake in the Italian brand Java and spent more time working to tap the Chinese market. To boost its competitiveness, the company optimized its resources.

"The design and research team remains in Italy to catch the stylish trends in bicycles," says Wang Yong, its marketing and promotion manager. Meanwhile, the company produces aluminum alloy frames for bicycles at a Tianjin factory and carbon fiber frames at a Xiamen factory. The bicycles are assembled at its Shenzhen factory.

About 70 percent of the 100,000 units produced will be sold in the domestic market this year, compared with 50 percent in 2008, he says.

Mining all opportunities

But for the industry as a whole, exports remain down.

Shenzhen exported almost 3.5 million two-wheel bicycles in 2013, down more than 30 percent from a year ago. The value also dropped 21.8 percent year- on-year to $270 million, according to customs figures.

In the first five months of this year, exports tumbled 2 percent to 1.72 million units, and the value dipped 2.3 percent to $130 million from a year ago.

Shenzhen Customs says exports are expected to recover slightly in the second half of this year. But the European Union's 48.5 percent anti-dumping duty on bikes imported from China continues to dampen exports.

But that hasn't stopped some companies from using a somewhat contrarian strategy.

Both Merida and Java are aware of the rising competition in the domestic market, remaining cautiously optimistic as they look at all their options.

"Our management is prudent and at the moment has decided to slow down the pace of expansion in the domestic markets, while exploring new export countries to diversify the destination markets," says Wang Yong of Chuang Xin Wei .

Some Asian countries such as Thailand, Cambodia and Japan have also seen demand for bicycles surge, he adds.

The company exported about 12,000 bicycles to Thailand last year, 20 percent rise year-on-year, according to Wang Yong. The company anticipates that its exports will keep growing this year.

Merida's Qiang says the company is targeting smaller but solid growth in the domestic market while keeping exports stable. Its exports mainly supply a US company, Specialized Bicycle Components, that Merida bought a 49 percent share of in 2001 for a reported $30 million.

"The peak seasons in overseas and domestic markets vary, which maintains the high efficiency of the workers," he says.

Peak sales seasons in Western countries usually fall from April to June but in China, the peak is from June to September.

While it takes a relatively small investment to enter the bicycle market, Wang Yipin of the Shenzhen Bicycle Association says newcomers, especially small-sized players, should be well prepared in terms of designs, assembly skills and safety factors for bicycles.

"Consumers might be attracted by low prices, but they would feel cheated after riding a poorly-made bicycle," Wang says.

Merida's Qiang says about 20 small brands have closed down already since the beginning of this year.

After-sales service is another major problem for market newcomers because it requires a big investment to satisfy buyers, Qiang says.

Merida provides a lifetime guarantee for its frames and will change parts and accessories without charge as long as they are within the warranty.

Despite fluctuations in the market, industry officials say the demand in the Chinese market for quality bicycles will keep rising.

"Now that people attach more importance to their health and have developed a better awareness of environmental protection, cycling is an ideal sport for individuals or families to get closer to nature and also exercise," Wang Yipin says.

The government's efforts in building "greenways," which are scenic trails or routes set aside for travel or recreation, also make things better for bicycle riders, she adds.

Guangdong province, where Shenzhen is located, plans to build a total of 8,770 kilometers of greenways by 2015, which would encourage bicycle riders to travel from one city to another on two wheels.

chenhong@chinadaily.com.cn