Bike producers facing down cycle as sharing sector's growth slows

Updated 2018-05-08 13:45:06

Domestic producers of bicycles, which got a lift last year from China's bike-sharing boom, face problems this year as orders decline.

The bike-sharing industry's expansion has ground to a halt and local governments in many cities have banned further shared bikes.

As of Friday, China's bike-sharing start-up ofo had only ordered 1.86 million bikes from Shanghai Phoenix Bicycles, a subsidiary of bicycle producer Shanghai Phoenix Enterprise Group, Phoenix said in a filing over the weekend to the Shanghai Stock Exchange. The number was far below the agreed level of 5 million bikes stipulated in a one-year contract signed in May 2017.

In the first four months of 2018, ofo only bought about 80,000 bikes from Phoenix, news website reported on Monday.

The original order was estimated to bring Phoenix 40 million yuan (.29 million) in net profit. But with a completion rate of 37 percent, the net profit is estimated to be merely 14.89 million yuan, quoted industry analysts as saying.

Phoenix said in the filing that the lower-than-expected order volume was a result of tightened government scrutiny of the bike-sharing industry and unexpected conditions in the market, both of which reduced ofo's demand for new bicycles.

Responding to the plunging orders, ofo said in a statement sent to the Global Times on Monday that "after two years of rapid growth in the bike-sharing industry, some cities have imposed bans on putting more shared bikes on the streets and ofo will cooperate with local governments to meet the regulation."

The start-up said that "there will be long-term and stable demand for bike purchases as existing bikes are close to the three-year retirement stage, which will in turn promote sustainable growth for the supply side."

Phoenix had not answered calls from the Global Times as of press time.

It is unclear if the firms will continue to cooperate, but analysts said it was doubtful that Phoenix would get any more big orders from ofo because the bike-sharing market is saturated and companies have stopped luring users through cash-burning practices.

"The bike industrial chain as a whole is likely to suffer a blow from declining orders," said independent analyst Song Qinghui.

In the first quarter of 2018, Phoenix reported revenues of 164 million yuan, down 42.7 percent year-on-year, while net profit slid 51.4 percent to 5.08 million yuan.

That was in sharp contrast to 2017, when Phoenix posted year-on-year growth of 127 percent and 45 percent in revenues and profit, respectively.

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