Does change in political leadership bode well for the Chinese motorcycle industry?
China has recently undergone a change in party leadership which has raised new hopes of a revamp for the Chinese motorcycle industry.
Chinese industrial production, investment and retail sales all accelerated in October, confirming China has ended its near two-year slowdown. But while China is still on track for growth of 8 per cent this year, this is likely to be its weakest growth in more than a decade and motorcycle trade has suffered as much as any industry.
The official appointment of Xi Jingping, who will formally succeed Hu Jintao as president of the Chinese Communist party in March, has the potential to accelerate slowing growth. Experts say the refreshed politburo appears more purposeful than its predecessor and reforms, such as reordering the pension system and urbanisation of lower-tier cities, could boost the economy.
The question on everybody’s lips in the industry here is ‘what will Xi do about the banning of motorcycles in urban centres. If he is planning to urbanise lower tier areas then surely this will increase the number of people unable to ride traditionally powered 2 wheelers?’
Motorcycle industry analyst of Huilong Culture, Gordon Fu, tackles the question. “The consensus in China is that President Xi will be more open to hearing the problems of the motorcycle industry. He is in charge at a time of upturn and will not want that to falter in any sector. The motorcycle industry consists of 1% of the total export value from China, and while this may not sound a lot, it is a huge sum of money and until relatively recently was growing, especially in western markets where Chinese bikes are now seen as much more than a cheap option. Everyone is hoping that Xi can be appealed to (over the banning of motorcycles in urban centres) and that some sort of parity can be restored in the domestic industry and will have a knock-on affect for export.”
The pressure on the Chinese government is not just coming from within. In October I was invited by a representative of Harley Davidson to represent them in a China-USA motorcycle trade summit in Beijing, an invitation that was retracted after the authorities discovered that as well as representing the Chinese motorcycle industries I was also a journalist! With HD sales souring in China, the likes of Ducati, MV Agusta established and Triumph looking to be open in China within the next 12 months the matter of motorcycle friendly roads was a main topic of the summit. The proposals mentioned related to allowing motorcycles of bigger displacements the opportunity to use highways which are currently out of bounds to motorcyclists although this move would not ultimately affect the domestic Chinese industry the new allowances could provide a platform on which Chinese manufacturers could lobby for change. The chairman of CAAM’s motorcycle sector Li Bin has long been pressuring the Chinese government to rethink their motorcycle policies. He commented
“I was not optimistic about the development prospective of the Chinese motorcycle industry for 2013. The Chinese economy is developing towards the expected direction of macroeconomic control, and economic growth is slowing down. Under this general economic climate, the Chinese motorcycle industry will inevitably be affected. The supervision on the implementation of national emission standard III will be even stricter. The 'ban or limit the use of motorcycle policy' in big cities prevent city dwellers from owning motorcycles, so the Chinese motorcycle market is shrinking. I predict that the Chinese motorcycle market will endure a dim performance if there is no change in policy from the new government.”
The reduction of motorcycle consumption tax is also a topic of great concern within the Chinese motorcycle industry. Li Bin told me “the CAAM Motorcycle Chapter had been calling for, and is now actively negotiating with the reformed Ministry of Finance for the reduction and remission of motorcycle consumption tax for the following three reasons:
First, the cancellation of motorcycle consumption tax would be a policy benefiting the huge population of Chinese farmers. In accordance to the national conditions of China, the income growth of Chinese farmers is limited and the motorcycle will still be a transport tool that Chinese farmers and low income groups can afford to buy. What's more important is that the motorcycle is closely related to the life of farmers as a production, transport and money making tool. The motorcycle has contributed a great deal to the development of China’s new ‘rural construction.’ Cancelling motorcycle consumption tax can help further reduce motorcycle prices to benefit the millions of Chinese farmers.
Second, the motorcycle belongs to the same industry as the car does, so the motorcycle should also enjoy the tax reduction that cars do. The motorcycle industry is part of the car industry, and is managed by the same institution. It is listed as an industry to be promoted by the government. The Ministry of Finance and State Administration of Taxation released a notice on 31st August 2008 saying that car consumption tax was to be adjusted from 1st September 2008 onward, and the consumption tax for cars with displacement lower than 1.0L (including 1.0L) was lowered to 1%. Currently, the consumption tax for motorcycles with engine displacement above 250ml is 10%, and lower than 250ml is 3%. Generally speaking, car owners are people with higher incomes, so motorcycle consumption tax should be reduced.
Third, the cancellation of the motorcycle consumption tax is good for expanding domestic demand. The average motorcycle consumption in China is about 18 million units per year. The total sales value would be about RMB 90 billion if we price each motorcycle at RMB 5,000. This will play a positive and boosting role for expanding domestic demand and increasing motorcycle consumption in China.”
Li Bin broaches the issue of 'banning or limiting the use of motorcycles'. He reveals that nearly all regulations and rules concerning the motorcycle bans implemented by the majority of Chinese cities were released at the end of the last century. The Chinese economy was booming at that time, traffic problems in cities were tough, and motorcycle management was the major problem. However, the Chinese economy has upgraded to a new stage of development. Li Bin believes that the topic to be discussed is whether the current motorcycle management mode is compatible to the current and future economic development of China.
Li Bin further states “the rationality of the current motorcycle management mode is something to be discussed. First, on the surface such a mode curbs people's demand to own and use motorcycles, so it also affects the development of the Chinese motorcycle industry and influences the fairness of Chinese society. Second, the current management mode reduces traffic problems related to motorcycles, but it may trigger bigger traffic problems caused by other forms of transportation.”
Not for the first time in the last 12 months I will have to say “we’ll have to wait and see”