5 Key Takeaways from 2024 China Cycle
OERUS attended the 2024 China Cycle in May and then visited bicycle and e-bike supply chain manufacturers throughout the country, specifically in Tianjin, Shandong, Shanghai, Zhejiang, Xiamen, Guangzhou, and Dongguan. Here are the five takeaways on the current state of things in the Chinese bicycle and e-bike manufacturing sectors.
1. MASSIVE CHINESE DOMESTIC MARKET GROWTH FOR MID TO HIGH END BICYCLES AND E-BIKES.
For over a year already, the domestic market in China has seen demand for mid to high end bicycles and e-bikes grow significantly. The new trend is fueled partially by consciousness towards health and exercise, as well as social media direct sales such as Douyin (also known as TikTok outside China). It is expected that demand will continue through the remainder of this year.
Although the bike market in China had primarily focused on imports of bikes from well known brands, often at a high markup due to import taxes and value added taxes - the current trend is effectively the opposite. The Chinese market has shifted in favor of local, domestic brands. This has helped spur significantly high sales turnover for domestic bike brands such as XDS, Forever, Battle, and Giant.
2. OEM EXPORTS CONTINUE TO DECLINE, AFFECTING OEM MANUFACTURERS ACROSS THE BOARD.
The aftershocks from Covid era overstock continues to plague the manufacturing sector in China, the same way it continues to affect Taiwan-based manufacturers even today. Factories in China have been forced to downsize their workforce, reduce operating hours to only a few days per week, extend staff holidays, or close down entirely.
With OEM manufacturers in decline, there has been serious effects on current production within the supply chain. With less workers and working hours, lead times have not decreased due contrary to the logic of having less orders. Instead lead times have become inconsistent or longer than normal. Quality has also taken a hit due to high personnel turnover and general decline in following standard procedures.
3. RISING MATERIAL COSTS FOR STEEL AND ALUMINUM ALLOY, WHILE DEMAND FOR CARBON FIBER FRAMES IS GROWING.
Costs of raw materials in China continues to rise steadily. The material used for most bike frames and components such as steel and aluminum alloy have already risen nearly 12-15 percent since 2023. This is followed by the rising cost of gas and oil at roughly 6-8 percent. Most of the overhead costs for running factories, as well as employment costs have also been rising, meaning that the cost for bikes, frames, and components will consistently rise through the year and well into 2025.
What does this mean for foreign markets? Expect to see price increases from OEMs in the near term on existing production and future production orders.
4. SIGNIFICANT NUMBER OF CHINA-BASED MANUFACTURERS MOVING OR BUILDING NEW FACTORIES IN VIETNAM TO CAPTURE DUTY FREE INCENTIVES FOR E-BIKES TO EUROPEAN UNION.
China-based supply chain manufacturers with capital means are either setting up new factories or moving their existing factory to Vietnam in anticipation of the zero import duty incentives announced by the European Union for Vietnam-made bicycles and e-bikes. This is consistent with the huge influx of Taiwan-based OEM manufacturers into Vietnam who have anticipated this preferential duty status for several years prior.
With the expected huge volumes of bicycles and e-bikes to be manufactured in Vietnam starting in 2025, there are also significant hurdles that are being set up by the Vietnamese government to limit the influx of manufacturers and the ease of export from Vietnam to the EU. In recent months, Vietnamese customs have increased their inspections of incoming goods and manifests to determine if the origin of goods and value are consistent. Trans-shipments from China have been heavily scrutinized. Bike manufacturers setting up new factories in Vietnam are required to build their own in-house frame production facilities as a measure to ensure that Vietnam-origin frames are used for bike production in Vietnam.
5. CHINESE EXPORTERS SETTING UP THEIR OWN CONSUMER DIRECT BRANDS IN FOREIGN MARKETS CONTINUE TO GROW.
Since even before the Covid pandemic, China-based or Hong Kong-based bike exporters have been targeting foreign markets for online consumer direct sales. These markets are essentially worldwide, but focused primarily on the most lucrative such as the United States, Canada, Australia, Japan, and European Union. Almost all markets can import bikes directly from China except for the EU, to which Chinese exporters simply arrange for trans-shipments as in the recent Leon Cycles case, or produce from within the EU using CKD shipments.
Based on observation of the sheer number of China-based bike brands operating in various markets as consumer direct websites or within different online marketplaces, the number of Chinese exporters continue to grow. While the wide range of selection is beneficial for consumers, the downside of this trend is that a majority of such brands lack quality, servicing, or accountability. Furthermore, these brands have largely destroyed product pricing per market standards as a means to capture market share, causing extreme competition to local brick and mortar bike shops and established online brand retailers.
