Editor’s note: This was originally a two part report by Li Siyi and Jiang Xiaochuan for Tencent Finance. It has been translated and further edited for clarity and style by Linda Lew.
In winning the bike-rental “arms race,” the number of bikes on the street has become the critical factor. China’s largest bicycle manufacturing hub has become a strategic battleground in the escalating war for users. Any Mobike, ofo or other bike-rental bicycles are very likely to have been manufactured by a factory in Tianjin.
The Revival
The heyday for Tianjin’s bicycle manufacturing industry was 20 years ago when there were several hundred bicycle factories and the profit on producing a bicycle was over RMB 10. However, in recent years, fierce competition and reduced demand have seen the number of factories decrease to a few dozen and the profit margin on a bicycle has fallen to RMB 1 or 2.
The industry looked to continue its decline until one day in 2015, two young men walked into Tianjin Fushida Corporation CEO Sun Hao’s office to place an order of 50,000 yellow bicycles. Fushida is the world’s largest bicycle producer with a manufacturing capacity of over 10 million bicycles per annum.
“Two very young looking guys,” Sun Hao described to Tencent Finance (in Chinese) the first time he met Chen Zhengjiang and Wang Gen from ofo, who were managing procurement at the time. “In the early days when we first took on the order, we weren’t so sure about it.”
Keeping Up with Demand
Now the number of bicycles that ofo orders from Fushida have ballooned over 200 times. In 2017, the Tianjin Dongli district based factory received the largest order for manufacturing the bikes to date – 10 million units.
The production line of a large bicycle manufacturer can churn out 1,200 units each day. This was confirmed by Tencent Finance reporter’s observations: one of Fushida’s ofo production line assembled 10 bicycles in 16 minutes. Based on this, Fushida is estimated to produce over 5,000 ofo bikes each day.
However, the factories still have limited technology. The production lines do not have much automation: components for the bicycles are assembled by manual labor. In the assembly section, the level of noise was high but most of the employees did not wear protective gear. Nor was there gear to protect from the pungent chemical smells found in some quarters of the factory.
Another large bicycle manufacturer Tianjin Aima Sporting Products Limited received an order for 5 million Mobikes in 2017. Most of Aima’s production lines are assigned to producing Mobikes. Starting from this year, those working on Mobike production lines need to work two shifts each day, according to one staff member. However, staff on other production lines do not have enough work.
Ramping Up Production Capacity
While the sudden increase in bicycle orders has reinvigorated the bicycle manufacturing industry, this has also generated an immense demand that bicycle manufacturers are finding difficult to fulfill. Bicycle manufacturers are scrambling to raise their production capacity.
Fushida has introduced a reward for current employees to encourage successful referrals. If a new hire referred by a current employee stays beyond the first month, then the referee can receive an RMB 500 cash reward.
A temporary staff member told Tencent Finance that the wage for a day’s work is RMB 130 with working hours between 8 am to 9 pm, six days a week. There is an hour break each for lunch and dinner with food provided by the company. According to this rate, one month’s wage comes to be about RMB 3,000. In the job posting from Aima, the monthly wage for assembly and paintwork staff is RMB 3,500 – 4,000, welders RMB 4,000 and cargo operation staff RMB 5,000 – 6,500. Food and accommodation are provided for all of these postings.
In addition to a shortage of staff, bicycle components and raw materials are also in high demand. The existing manufacturing capacity is limited and also factories in the Northen China region face temporary manufacturing bans from time to time to reduce smog. These inevitably lead to the pricing of bicycle components skyrocketing.
Tianjin Jiufa Bicycle Company manufactures bicycle frames and its main raw material is steel. In 2015, the upstream frame raw material price was RMB 4,000 per ton. In September 2016, the price rose to RMB 5,300 per ton.
“Last year, when negotiating with raw material suppliers, it used to be possible to drive the initial pricing down by around a few dozen kuai,” Jiufa Bicycle General Manager Zou Suqing told Tencent Finance (in Chinese). “Since the end of last year, there was no longer any room for negotiation. It was either take it or leave it.”
Uncertain Future
The bike sharing boom’s immediate invigoration of the bicycle manufacturing industry is evident. However, the long-term effects remain to be seen.
“Now everyone focuses on the short-term profits,” Bicycle supply chain middleman Zhang Bei (name has been changed to protect his privacy) told Tencent Finance (in Chinese). “When this bike sharing war ends and in the post-bike sharing age, will the revival of traditional bicycle manufacturing still continue?”