– by Zhao Yi and Zheng Shuang
Zongshen Industrial Group (Zongshen) based in Chongqing, southwest China, is one of the biggest motorcycle makers in China. Zongshen has recently partnered with PEM Power Systems Inc. of Canada and Piaggio of Italy to produce respectively pure electric motorcycles and hybrid motorcycles. In a recent interview granted to Diyi Caijing Ribao, or China Business News, Zuo Zongshen, Zongshen chairman of the board, says that in five years new energy motorcycles will make up half of Zongshe’s total motorcycle output. This means that by then Zongshen will turn out at least 1 million new energy motorcycles a year. Zongshen made 2 million motorcycles in 2009. Following are excerpts of the interview. – Editor
China Business News (CBN): The policy of subsidizing purchases of motor vehicles in the countryside that began last year covers the microvan. How would this affect motorcycle sales?
Zuo: I do’t think this will adversely affect the motorcycle market. First of all, there are particular customer groups for the motorcycle. Secondly, the motorcycle has irreplaceable functions. Although some customers will indeed choose to upgrade to microvans, the subsidizing policy is not particularly tuned to rural customers. They have to pay hefty taxes and high license fees, for example. Besides, most rural peasants ca’t afford microvans.
The Finance Ministry has recently come up with a draft policy to adjust motorcycle-related taxes and fees. When this policy is implemented, the motorcycle market will have great potential for growth.
CBN: At present, more than 170 cities ban motorcycles. If the microvan spreads to tier-3 cities and the countryside, will the motorcycle industry face a crisis?
Zuo: The government imposed restrictions on the microvan, too, in the past. Restrictions were later lifted. I appeal to the government to consider lifting the ban on the motorcycle. The government should take into consideration problems caused by cars, such as traffic congestion in cities, pollution to the environment and huge gasoline consumption.
Families everywhere are in search of means of transportation that is faster and more efficient and economical. Cars will have a heavy pressure on a society when ownership volume reaches a certain point. I do’t think China’s auto industry can keep growing at the current rate. China has too big a population. The space in the country is too small in per-capita terms and it is short of resources.
CBN: Lifan, your rival in Chongqing, has moved into car manufacturing. Will Zongshen follow suit?
Zuo: No, we wo’t get involved in car manufacturing. We may move into other small, low-cost means of transportation vehicles such as electric three-wheelers.
Last year automobile sales in China reached 13.62 million units. Also last year China imported 200 million tons of petroleum, more than 50 percent of its consumption. Auto sales this year are expected to reach 15 million units. If the auto industry keeps developing at such a pace, where is China going to get all the petroleum needed?
CBN: One-third of Zongshe’s revenues come from exports. The world’s financial crisis has had a serious impact on Zongshen, especially on its cash flow. How do you look at the prospect of your export business?
Zuo: Demand from mature markets, Europe and the United States, has indeed fallen drastically since 2008. But last year saw a recovery of the export market thanks mainly to growth in emerging markets. This year Zongshen Group’s export business has come back to where it was before 2008. The emerging markets have helped.
But growth of China’s motorcycle industry relies mainly on domestic demand rather than exports. Take Taiwan, for example. People in Taiwan can afford cars but the island is a great market for motorcycles. Taiwa’s 20 million population owns 20 million motorcycles. Why is the motorcycle so popular there? It is mainly because the motorcycle is convenient and inexpensive to own and use.
With implementation of government policy to subsidize motorcycles in rural areas and the lifting of the ban on motorcycles in cities, the ratio of motorcycle exports to total sales on the home market would not be 2:1. Sales on the home market might be greater than exports.
CBN: Zongshen reached agreement on June 12 to produce electric motorcycles in cooperation with PEM Power Systems of Canada. On June 13, Zongshen and Piaggio of Italy announced to work on introducing hybrid motorcycles to the China market. Do these deals indicate that Zongshen is moving into new energy manufacturing?
Zuo: Yes, we’re moving in that direction. We are pooling advanced technologies of the world for use on new energy means of transportation. Our preliminary plan is to electrify, in five years, 50 percent of our motorcycles. We are going to achieve the goal by tapping into the global capital market, integrating international technologies and capitalizing on China’s great market potential.
CBN: For electric motorcycles, including scooters and E-bikes, the government has set a market access threshold as well as certification standards. What’s your comment on such standards?
Zuo: China annually produces more than 20 million electric motorcycles and E-bikes in addition to more than 20 million gasoline motorcycles. These add up to close to 50 million. This is a big industry but an industry with low technology. Current market thresholds for manufacturing and sales are low. The government should come up with more stringent regulations and higher standards to force the industry to upgrade.
There are now more than 2,000 E-bike factories in China, averaging 10,000 E-bikes per factory. There are no economies of scale, nor is there any brand advantage. It is perfectly correct for the government to regulate the industry.
Rewritten by Raymond Chen based on authors’ article carried by
Diyi Caijing Ribao or China Business News