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

Updated 2017-04-12 10:00:47 Global Times
“Graphics:

Graphics: GT

Bike makers riding high, for now

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 (9.75 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.

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