China surpassed Japan as the world's biggest motorcycle manufacturer in 1993 but the market has experienced some recent difficulties. With a slump in domestic demand and expanding levels of production, stockpiles of Chinese motorcycles almost tripled in 1996. According to China Daily, national inventory topped 676,700 by last September, compared with 230,340 at the end of 1995.
With foreign partners pouring in capital and technology, domestic production has surged in recent years. In the first half of 1996, China turned out 4.28 million units while sales stood at just 3.8 million. Competition has squeezed output and profitability. Sales at the country's biggest motorcycle manufacturer, China Jialing Industrial, fell to Yn3.5bn (US$422m) in 1.996 from Yn4.6bn in the previous year. After-tax profits were nearly halved to Y1=1270m (US$32.5m).
China's motorcycle market has expanded rapidly since 1990, starting in the southern province of Guangdong. The trend spread gradually northwards, but ownership is still concentrated in the more affluent and warmer cities of the south, such as Guangzhou and Foshan. Shenzhen and the other special economic zones tend to have a relatively low concentration of motorcycles, because of their large transient population.
The big increase in disposable income has been the single most important contributory factor accounting for rising demand, which has now entered a phase of milder growth of around 20 per cent a year. Based on an estimate by Shanghai Securities News, national motorcycle sales in 1996 were 8 million units. The cooling down is largely attributed to a tightening of licensing policy in major cities such as Shanghai and Guangzhou where traffic jams have become a way of life. Congestion has been exacerbated by the continued flow of smuggled vehicles from Hong Kong and the tendency for progress in transport infrastructure to lag behind economic development.
Currently, the market is dominated by smaller engine models of under 200cc; one-fifth of the market is for 50cc models. The Ministry of Machinery Industry predicted that 30 per cent of motorcycles produced in the year 2000 will be 50cc, 65 per cent will be 55-200cc and just five per cent will be above 250cc. However, high-powered motorcycles are expected to become more popular in urban areas over the coming decade. The lesser-developed rural market is likely to show a growing appetite for lower-powered models.
With slack demand at home, manufacturers are increasingly looking to overseas markets. In 1995, China exported just one per cent of its production, mostly to Southeast Asia and Africa. One of the major difficulties to date has been the absence of large enterprises with the resources to match international competitors.
China has about 200 domestic manufacturers, most of which are located in the south. Total capacity is now 20 million units a year. However, only 15 of the manufacturers have an annual production capacity of more than 100,000 units and just four exceed 500,000 units.
Surpluses have induced heavy price cutting, leading to slimmer profits and in some cases, losses. The state is now encouraging the merger of small, local factories and has set a target of creating 10 large conglomerates by the turn of the century. Annual production may reach 9-10 million by the year 2000. The top three producers are currently Jinan Qinqi, Chongqing Jialing and North Jianshe, all with sales in excess of one million units in 1995.
One of the fastest emerging companies is Shanghai-Ek Chor Motorcycle Company, which is located in the booming Pudong district of Shanghai. Thai-based Charoen Pokphand is one of the chief investors in the US$118m plant which is now rolling out 400,000 units of 50-150cc motorcycles and 600,000 engines. It plans to raise production to two million motorcycles by 2000.
Renowned Japanese makers Suzuki, Honda, Kawasaki and Yamaha also have production bases in China, aiming at production of 125-250cc motorcycles for the local market. Germany's BMW is also negotiating a car and motorcycle joint venture