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China’s bicycle-sharing boom poses hazards for manufacturers
NEW 34 MINUTES AGO
14 HOURS AGO by: Ben Bland in Guangzhou
China’s bicycle-sharing craze ought to be good news for struggling manufacturers in the world’s biggest maker of two-wheelers.
But executives from traditional Chinese bicycle factories say the spectacular growth of bike-sharing apps such as Mobike and ofo has disrupted their supply chain and is putting the brakes on their business model.
Yu Yuefeng, a managing director at Phoenix, China’s oldest bicycle maker, said that domestic sales dropped last year when these apps, which allow consumers to pick up and drop off their bikes anywhere, started to gain favour.
“Bicycle shop owners say that sales are slower this year and some are shutting down,” he said last week at the Canton Fair, China’s biggest trade show, in Guangzhou. “Some factories are switching to produce shared bikes and this is driving up the price of components and causing problems in the supply chain.”
Shanghai-based Phoenix, which has been producing bicycles for 120 years, hoped that the growing focus on healthy living and fitness in China would help them reverse a long-term sales decline.
Over the economic boom of the past 30 years, many Chinese consumers traded up to motorbikes, electric scooters and cars or started using the vast metro and bus systems that have been built in many cities. The proportion of commuters cycling to work in Beijing fell from more than 60 per cent in 1980 to 12 per cent in 2014, according to state media.
The rapid rise of bike-sharing companies, which have raised hundreds of millions of dollars in venture capital and put millions of bicycles on to China’s streets in just a year, seems to have reversed that trend. Mobike and ofo have led the way but more than 20 smaller rivals have jumped into this new booming industry, keeping costs low and forcing these companies to offer subsidies to maintain market share, much like Uber.
But the sharing phenomenon is shaking up the Chinese bike-making industry, which generated revenue of $11bn last year, according to IbisWorld, a market research company, and employed 150,000 people.
Rather than buy and adapt traditional two-wheelers, Mobike, which has 3.65m bicycles in 50 cities, decided to design its own cycles that would be easier to maintain and connect to the internet.
Its bikes incorporate tyres that do not need to be inflated, materials that do not rust easily and GPS tracking so users can locate them easily.
“At the start, we did talk to traditional bicycle factories but we wanted to reinvent the bicycle with a very different use in mind,” Mobike said.
After building its own factory, Mobike is now working with other suppliers to ramp up production. With the help of investor Foxconn, the Taiwanese group that assembles iPhones and other electronic goods, it claims it now has the capacity to make 36.5m bikes a year, equivalent to nearly a third of total global production.
An increasing number of those bikes will be shipped overseas as Mobike and ofo take their competition to Singapore and other international markets.
Traditional bike manufacturers are struggling to react. Phoenix has started supplying bicycles to ofo, which uses cheaper, more classic-style bikes with a few simple adaptations.
Zhonglu group, which owns the popular Forever Bicycle brand, has invested in its own bike-sharing apps, Ubike and Gonbike.
Shirley Cheng, a sales manager for Forever Bicycle, whose products were seen as a luxury before the economic reforms of the 1980s, said that today many commuters preferred the convenience of bike-sharing to buying their own bicycle.
She called on the government to start regulating the sharing schemes more tightly to deal with the large numbers of bicycles that are being dumped around China’s cities and prevent the economy facing yet another over-capacity problem.
“There are too many bike-sharing suppliers and many are not profitable so there will be a big reshuffle in the next one to two years,” she said.
Mr Yu of Phoenix added that while bicycle factories with thin profit margins will go bankrupt if they cannot maintain sales, the bike-sharing companies are operating more like technology companies, making big losses with the backing of deep-pocketed investors.
“These internet companies care more about gaining traffic, data and market share,” he said. “So they push their app, build their platform and only think about profits later.”