Bike mak­ers rid­ing high

Man­u­fac­tur­ers hes­i­tate to ex­pand ca­pac­ity to meet surg­ing start- up de­mand

Global Times - - Business - The ar­ti­cle is based on a story in Caixin mag­a­zine. Page Edi­tor: yuxi@glob­al­times.com.cn

China’s once wan­ing bi­cy­cle man­u­fac­tur­ing in­dus­try has ex­pe­ri­enced a re­vival thanks to the re­cent bike- shar­ing boom. No longer strug­gling with over­ca­pac­ity, bike mak­ers and bi­cy­cle parts man­u­fac­tur­ers face a new dilemma: Should they ex­pand ca­pac­ity to meet the soar­ing de­mand of bike- shar­ing start- ups? Mean­while, the price of bike parts has sig­nif­i­cantly in­creased and la­bor costs have risen. Many in the in­dus­try have rec­og­nized that the boom will not last for­ever. For its part, do­mes­tic biker Fly­ing Pi­geon has plans for how to suc­ceed af­ter the boom ends.

Many of China’s bi­cy­cle man­u­fac­tur­ers were on the brink of bank­ruptcy early in 2016 as ane­mic or­ders forced them to shut down fac­to­ries and lay off work­ers.

Then, seem­ingly out of nowhere, the bike- shar­ing busi­ness took off. In the sec­ond half of 2016, or­ders flooded back into bike fac­to­ries, giv­ing the in­dus­try a re­prieve.

As of early 2017, a bi­cy­cle fac­tory in Wuxi, East China’s Jiangsu Prov­ince, has pro­duced 800,000 bikes which are val­ued at around 2 bil­lion yuan ($ 289.75 mil­lion), for Mo­bike, the Ten­cent Hold­ings- backed bike- shar­ing plat­form, fi­nan­cial news pub­li­ca­tion Caixin re­ported on Mon­day.

“The bi­cy­cle man­u­fac­tures were shocked to re­ceive such large or­ders from the plat­form,” Mo­bike founder Hu Wei­wei told Caixin.

The do­mes­tic “time- hon­ored” brand Fly­ing Pi­geon de­liv­ered 450,000 bi­cy­cles which are val­ued around 1 bil­lion yuan, to the bike- shar­ing start- up Ofo in March. At Fly­ing Pi­geon Bi­cy­cle Co’s fac­tory in North China’s Tian­jin, four of its six pro­duc­tion lines are de­voted to pro­duc­ing Ofo’s eye- catch­ing yel­low bikes. Cur­rently, the plant’s daily out­put is about 12,000 to 15,000 bi­cy­cles, said Jin Jian, the com­pany’s chief mar­ket­ing direc­tor.

“Af­ter the [ 2017] Spring Fes­ti­val hol­i­days, my com­pany hired 200 new em­ploy­ees, who have work­ing day and night to keep up with the flow of or­ders from Ofo,” Jin said. And the com­pany ex­pects Ofo’s or­ders to dou­ble in April, Jin said.

It has been es­ti­mated that bi­cy­cle or­ders from start- ups like Mo­bike will grow to more than 30 mil­lion in 2017.

Ex­pand­ing ca­pac­ity

Shang­hai- based bike pro­ducer Phoenix Co is an­other Ofo sup­plier. In 2016, one- third of the com­pany’s or­ders come from Ofo. The com­pany also han­dles over­seas de­sign and re­search and de­vel­op­ment for Ofo.

Phoenix is plan­ning to add two un- au­to­mated pro­duc­tion lines to meet Ofo’s soar­ing de­mand, said Xu Li, the com­pany’s head of ad­min­is­tra­tion.

Xu wor­ried that the bike- shar­ing boom might be over by the time the com­pany has hired and trained new em­ploy­ees to work on the new lines.

“It gen­er­ally takes four to six months to train a skilled as­sem­bly worker, not to men­tion hir­ing re­search and de­sign tal­ent,” Xu said.

His con­cerns were echoed by sev­eral other do­mes­tic bi­cy­cle pro­duc­ers, who have all watched their prob­lems shift from hav­ing too much ca­pac­ity to hav­ing too lit­tle.

“There is a gulf of or­ders from Fly­ing Pi­geon that my fac­tory can­not han­dle,” said a man­ager sur­named Li, the boss of a small bi­cy­cle fac­tory at Wangqing­tuo town in Tian­jin’s Wuqing district. The town is home to an ar­ray of small and medium- sized bike mak­ers that take out­sourced or­ders from large bi­cy­cle pro­duc­ers.

Li be­lieves that ex­pand­ing ca­pac­ity to meet the de­mand of the bike- shar­ing start- ups is in­sanely risky.

“What if the bike- shar­ing in­dus­try van­ishes? If that were to hap­pen, not only would I lose the money I in­vested [ in new pro­duc­tion], but I would also have to shut down my fac­tory,” he said.

The mar­ket is chang­ing so rapidly that no one knows how things will look in the near fu­ture, said Pan Yuhua, vice pres­i­dent of Fly­ing Pi­geon.

Part short­age

Planned pro­duc­tion to meet de­mand from bike- shar­ing start- ups is equiv­a­lent to about 50 per­cent of the in­dus­try’s cur­rent ca­pac­ity, said Phoenix Pres­i­dent Wang Chaoyang.

“That in turn has led to a short­age of bike parts, which has driven up their prices,” Wang said, not­ing that la­bor costs have also risen.

Jin agreed. He es­ti­mated that la­bor costs have in­creased by 10 per­cent to 15 per­cent in 2016. Fly­ing Pi­geon now pays its work­ers 4,000 yuan ($ 579.51) to 5,000 yuan a month. Mean­while, ris­ing sup­plier prices have pushed up man­u­fac­tur­ing costs by around 30 per­cent from the pre­vi­ous year.

Even with ris­ing prices, some bi­cy­cle as­sem­blers are hav­ing a hard time pur­chas­ing bike parts, even though they have the money, a source close to the mat­ter told Caixin.

In ex­treme cases, bike mak­ers have been will­ing to pay sup­pli­ers in full in ad­vance to se­cure the parts they need, the source said. That has in­creased the cap­i­tal risk for man­u­fac­tur­ers be­cause the bike- shar­ing start- ups usu­ally pay only 30 per­cent in ad­vance to their con­trac­tors.

Bike parts mak­ers have been mak­ing their own trade- offs as well.

Bi­cy­cle chain maker Meiya has pur­chased 600,000 yuan worth of au­to­mated pro­duc­tion equip­ment be­cause it needs to boost out­put by 42 per­cent to meet the de­mand of the bike- shar­ing in­dus­try, said Wang Chaoguang, the com­pany’s gen­eral man­ager.

Ex­perts pointed out such cap­i­tal ex­pen­di­tures are risky be­cause de­mand could dry up, forc­ing new pro­duc­tion ca­pac­ity to re­main idle.

Look­ing past bike shar­ing

The sup­ply chain needs time to ad­just to the im­pact of the bike- shar­ing in­dus­try, Phoenix’s Wang said.

Lü Chengjiang, co- founder of Hangzhou- based bike- shar­ing plat­form Qibei, de­scribed the cur­rent fever in the in­dus­try as “the fi­nal mad­ness for bike man­u­fac­tures.”

“The bike- shar­ing in­dus­try has dealt a blow to the coun­try’s de­mand for in­ex­pen­sive bikes, or those priced be­low 1,000 yuan,” Lü said.

Lü pre­dicted or­ders for these bikes will evap­o­rate in a year or two, leav­ing those bike man­u­fac­tures with a lim­ited mar­ket share.

Photo: CFP

Res­i­dents ride bi­cy­cles from a bike­shar­ing start- up past bikes from a com­pet­ing firm on Thurs­day in Guangzhou, cap­i­tal of South China’s Guang­dong Prov­ince.

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