Thu, Nov 13, 2003 page11

• Giant planning to expand in China with new plant

  BONANZA IN BICYCLES The new factory will be the company's first to make products exclusively for the Chinese market as it shifts its focus to the countryside

  • BLOOMBERG
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  Giant Manufacturing Co (巨大機械), Taiwan's biggest bicycle maker, plans a fourth factory in China to expand in a nation that owns 450 million bicycles and manufactures almost two-thirds of the world's bikes.

  The plant, to be built next year in Chengdu or Tianjin, will be the first Giant plant to sell exclusively to China, the world's largest bicycle market.

  Giant made one of every 20 bikes sold in China last year, said company spokesman Jeffrey Hsu (許立忠).

  "There's potential in the north if it locates in Tianjin because the bicycle factories there aren't very big," said Dison Wang, an analyst at Yuanta Core Pacific Securities (元大京華證券).

  "As for Chengdu, there's room to grow as development moves to the west from the eastern coast. Factories in the east are approaching overcapacity," Wang said.

  Giant will be shifting its focus to China's rural areas, where farmers who earn 1,802 yuan a year can't indulge in the car-ownership craze now sweeping Beijing, Shanghai and other major cities.

  Bicycles made at the new plant will sell for as little as 200 yuan (US$24), Hsu said.

  "There are more and more Giant bicycles in my village," said Sun Zihua, a security guard in Beijing who hails from Juye County, a poor region in the Shandong Province.

  "Though most of people at my hometown still find it too expensive," he said.

  Giant has grabbed market share from state-controlled domestic rivals Phoenix Co and Shanghai Forever Bicycle Co by offering lighter aluminum alloy frames, stylish design and mountain bike models. Its standard one-speed bikes sell for 500 yuan, compared with 400 yuan for a comparable Phoenix and 300 yuan for a Forever.

  "I just got a second-hand Giant a few months ago after my first Giant was stolen," said Lorein He, a Beijing bank clerk.

  "It looks nice and is durable," He said.

  Sturdy stalwarts

  For decades, Forever, China's oldest bicycle maker, and Phoenix, its largest, dominated pedal power in a nation where one in three people owns a bike. The then state-owned stalwarts produced bicycles with sturdy steel frames at prices the masses could afford.

  Foreigners entered the market in the late 1980s, when urban incomes were beginning to rise as China opened its doors to foreigners and began deregulating its markets. Brands such as Giant, Peugeot and Emmelle came to symbolize style and status. Two decades on, the status symbol in cities has become the automobile, pushing the market for bicycles to the countryside, where people earn two-thirds less than in cities.

  China produced about 70 million of the 110 million bikes manufactured globally last year. About 45 million bicycles valued at US$1.5 billion were exported, both by domestic and overseas manufacturers with factories in China.

  "I've always preferred the convenience of a bicycle," said Li Wei, an investment manager who cycles to work everyday at China's second-biggest brokerage, Shenyin & Wanguo Securities Co, in Shanghai.

  "Since I live close to the office, there's no sense worrying about parking space," Li said.

  Wei is a dying breed in China's richest city, where the well-to-do are turning to cars from bicycles. Shanghai has extended street bans on bicycles to the city's two busiest shopping streets, Nanjing and Huaihai. Car sales in China are expected to surge a third this year, aided by expansion in consumer lending. Bicycle sales growth may remain flat, Giant's Hsu said.

  Weak revenues

  Shanghai-based Phoenix reported only 10.2 million yuan (US$1.2 million) of profit last year after posting losses in three of the last five years. Its shares are up 4 percent this year. Forever said last year's profit declined fourth-fifths to 56.9 million yuan. Its shares dived 46 percent.

  Giant forecasts sales in China will rise as much as a fifth this year. Last year about a 10th of the company's NT$17 billion (US$500 million) in sales came from China.

  Its new bicycle plant will have the capacity to make 500,000 bicycles a year and will require investment of as much as US$7 million, a Chinese-language newspaper reported.

  Spokesman Hsu declined to comment on details of the investment.

  Taichung-based Giant has a factory in Kunshan near Shanghai, where the company expects to make 2.6 million bikes this year.

  The company also controls 45 percent of a venture in Shanghai that is forecast to manufacture 1.2 million bikes this year, Hsu said.

  Both plants make bicycles for export and sale at home. The company also has a bicycle-parts maker in China.

  Giant has factories in China, Taiwan and the Netherlands.

  The US accounts for 30 percent of the company's sales, Europe makes up about 32 percent and Japan contributes 13 percent. Giant also sells to Australia, New Zealand and Canada.

  Net income last year rose to NT$746.1 million from NT$543.4 million a year earlier on sales of NT$16.8 billion.

  Giant, which made bikes under the Schwinn brand for the US market a decade ago, has been faring better than competitors. Ohio-based Huffy Corp, which owns the Schwinn/GT brands, has posted losses in four of the last five years. Cannondale Corp, which became the second-largest US bike maker after Huffy by selling custom-made mountain bikes, won bankruptcy court approval earlier this year.
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