Facing a maturing market that demands more advanced products and overall economic tightening, one of China's biggest motorcycle makers Chongqing South Motorcycle Co expects a slight decline in production this year to 6 million units.
Company President Chen Yongqiang told China Daily at a forum during EICMA China, the nation's leading motorcycle show, that slowing production in most industries is likely after expiry of a 4 trillion yuan government stimulus package designed to battle the global financial crisis.
Other factors dampening sales include implementation of the nation's third-generation emission standard - which equals Euro III - along with ever-rising raw material prices, more stringent environmental standards and unstable market factors.
The South Motorcycle was formed last year through the merger of top-ranked motorcycle firms Jialing and Jianshe, both based in Chongqing, and Qingqi in Jinan.
The motorcycle giant is now a part of China South Industries Group Co, a central government State-owned enterprise .
Immediate benefits from the merger include an injection of 5 billion yuan from the parent company and nearly 700 hectares of land to expand production.
"This year the operation is progressing smoothly," he said.
South Motorcycle also spent 280 million yuan to acquire shares in South Yamaha and Qingqi.
Chen said the company now expects to become world-class heavyweight in the motorcycle sector.
The evolution of South Motorcycle is similar to the path taken by motorcycle giants in Japan, which resulted from the restructuring of many small firms that grew into market leaders.
Industry upgrade urged
Chen, who is also chairman of the China Motorcycle Chamber of Commerce, said the sector is feeling the pinch from several sides.
"China's motorcycle purchases will decrease - a crucial task is to upgrade and renovate technologies," he noted.
"Only high-end products with low emissions and diverse production will be competitive."
He said the nation's motorcycle companies should follow Harley-Davidson, a leader in professionalism, or Honda, a prime example of diverse products.
Smaller firms building low-tech motorcycles are now very active in China - "but they are set to vanish" from the market, Chen said.
He urged companies to strengthen research and development to cash in on big-spending consumers.
European and US firms now have the lion's share of the market for motorcycles priced in the 100,000-yuan range, while Japanese companies dominate the 10,000-yuan level.
"China only has a niche in the narrow 1,000 yuan market," he said.
Zhi Luxun, deputy director of the Electric Machinery and Technology Department at the Ministry of Commerce, said the sector now has been dragged into a severe "low-price war" in overseas markets.
He noted Vietnam and India have an advantage through developed industrial clusters while China's industry remains fragmented.
Other key challenges are more stringent limits on emissions and bans on motorcycles in some cities, said Zuo Zongshen, president of another leading motorcycle maker, Zongshen Industrial Group Co.
Despite the challenges, China remains world's largest motorcycle producer and exporter.
It produces 25 million motorcycles annually with exports valued at $4 billion.
