Electric e-volution underway in China

In 2008, a high-ranking delegation from the Chinese bicycle industry went on a fact-finding tour of Europe in a bid to raise the standards of their two-wheel products. Chinese bicycle makers were burdened with a 48.5 percent tariff (and still are), so a special focus of the nine men turned toward the potential of electric bicycles, or e-bikes, which combine pedal and battery power.

The European Union had just set new standards (EIN 15194 and the Machinery Directive), which showed the Chinese factories exactly what standards to meet, and what levels to achieve.

In Stuttgart, Germany, the group learned about an e-bike rental scheme involving public battery charging machines spread across Austria, the Czech Republic, Germany, Hungary, Italy and the Netherlands.

In Cologne, they visited a laboratory that tested e-bike electronic devices. Finally in Brussels, a meeting was held with the leaders of the European Two-wheel Retailers' Association (ETRA) and the European Cyclist Federation (ECF), in which the new local legislation and the expectations of European retailers and customers toward China-made bikes were hot topics.

The visitors were excited about the business potential of a rapidly growing market. Thanks to environmental campaigns, rising fuel prices and better bicycle infrastructure, e-bike popularity was sweeping across Europe and sales of power-assisted bikes in Germany and the Netherlands alone were doubling each year - this year, about 1.1 million e-bikes are expected to be purchased in Europe.

However, after 10 days of face-to-face discussions, dinners and lunches, it became clear that the Chinese and Europeans had different ideas of what quality meant.

"Quality is a word that has many meanings between different cultures, different industries and individuals," says Ed Benjamin, chairman of the Light Electric Vehicle Association (LEVA) and e-bike consultant.

"I prefer to think of quality as getting exactly what you expected to buy, every time."

Benjamin, who is also managing director of eCycleElectric, helps Chinese e-bike companies break into the European market and says Chinese standards have significantly risen to meet European standards, which came into effect late 2009.

"China is capable of making very high-quality products, and demonstrates this in many industries, but if you were to listen into a conversation between European bicycle buyers and Chinese bike makers, you would hear the Europeans emphasizing that the most important thing to them is a low price," he says.

"There has not been enough detailed information exchanged to establish what is the correct level of quality, fit, finish, function, reliability and size in bicycles.

"Most companies are learning to be more careful about this, and when a Chinese factory has a clear understanding of what is required, they can do the job well.

"When the emphasis is only on price, there is a need by the Chinese factory to reduce costs constantly to allow them to make money.

"This is often unexpected by the Western customers, who regard the samples used to place the order as the only and permanent specifications or product quality level they expect to receive. So this is really a communications problem, complicated by language and culture."

Many Chinese e-bike manufacturers are today following the 2008 delegation's lead as they raise production standards and probe the EU market for more opportunities. At the same time, China's 3,000-plus e-bike makers are also busy supplying the huge demand within China.

Last year, the country produced 23.6 million e-bikes, up 8.2 percent from 2008. This year, the industry estimates more than 27 million e-bikes will be made representing a market worth almost $8 billion (6.6 billion euros).

E-bike production in China last year rose 8 percent, contrasting a 13.2 percent reduction in conventional bicycle manufacturing. It was the biggest reduction of bicycle sales since 1996, according to the China Bicycle Association.

More Chinese families are buying cars than ever before and many more are ditching traditional pedal power for battery-propelled two wheelers, which can race at 35 kilometers per hour and significantly cut commuting times for the average office worker.

China already has 140 million e-bike users, but this is expected to soar over the coming decade.

Czech President Vaclav Klaus tries a Guewer e-bike. The Ningbo-based Guewer has been using innovative ways to market its products and build its brand. Provided to China Daily

According to US-based Pike Research, more than 466 million electric powered two-wheeled vehicles, including motorcycles and scooters will be sold worldwide between now and 2016, and 56 percent will be e-bikes. More than 95 percent of these e-bikes will be sold in China, the researchers predict.

"Demographics and economics are aligning to create a strong market opportunity for two-wheel electric vehicles," says Dave Hurst from Pike Research.

"In some countries, these vehicles will be engines of economic growth, while in others they will be signals of broader consumer behavioral shifts."

In recent years, the Chinese government has offered subsidies on small minivans to help drive the economy through the recession. People living in lower-tiered cities are also receiving 13 percent subsidies on new e-bikes.

A "luxury" e-bike sold in these areas costs only 2,400 yuan (273 euros), but still represents a major investment for rural people who on average make only 1,000 yuan a month.

The subsidy was enough for Song Yingxue, from the eastern province of Shandong, to buy her new set of electric wheels. It used to take Song 50 minutes to get to work on her old bicycle, but now it only takes 20 minutes.

"I like the spot lamp best. It makes the bike safer than traditional ones, and is very useful when riding on dark countryside roads," she says.

Tian Shuchang, sales manager of Jiangsu Xinri E-Vehicle in Shandong province, says rural people who used to favor motorcycles are now turning to electric bikes because of rising fuel prices.

He predicts a 50-percent sales increase in the rural township market thanks to the subsidy.

With such huge, growing numbers, manufacturers are competing fiercely in an extremely price sensitive market, in which e-bikes vary from 1,700 to 3,000 yuan.

Although no single brand dominates in China, Changzhou Hongdu Electric Bicycle Co, Jiangsu Xinri E-Vehicle and Luyuan Electric Vehicle are popular choices, according to Hurst.

European brand names such as Bianchi, Kouta, De Rosa and Pinarello are popular but are losing market share due to higher prices, according to bike retailers.

These European bikes are purchased for recreational use rather than for commuting.

"These brands are well known to Chinese consumers, but instead of buying the whole bike, they are buying just the parts and assembling it themselves," says Yang Linhua, director of Bike World, which has many outlets throughout Shanghai.

"Sales of these bikes are dropping and consumers are no longer buying these brands blindly, and are looking for value but quality in Chinese-made brands."

In Europe, only a few Chinese brands that have met EU standards are competing in a market where prices range from 800-2,000 euros.

Giant Bicycle, which is made in Taiwan, has gained a foothold and Ningbo-based Guewer has also invested heavily in creating brand name awareness of their company in Europe.

Zhu Yong, president of Guewer e-bikes, claims his products match the quality of other European brands and are priced lower - between 500-600 euros - and come with better after-sales service.

"We believe our after-sales service is better than some European companies. The customer makes a phone call and we immediately go and repair the bike," he says.

Zhu says Guewer was trying innovative ways to market its bikes and build its brand.

"Last year, we sent the Czech President (Vaclav Klaus) one of our bikes as a present and in July this year we held a 2,000 km ride through Austria and Hungary, the Czech Republic and all the e-bikes were ours," he says.

"Our plans will guarantee the quality of our products and continue to research what our customers need."

Although most e-bikes rolling on the streets of the UK, Germany and Italy are European brands, more than 80 percent are assembled from Chinese components at European factories belonging to well-established brands.

Bafang Motors in Suzhou is a successful brand, Nanjing Lishui makes controllers and King Meter, in Tianjin, makes displays for Stromer bikes, a respected Swiss brand.

He Xiangbing, R&D and overseas sales director for Bafang Motors, says 90 percent of the company's 330,000 motors were last year exported to Europe and this year an estimated 405,000 units will be sold.

"We cooperated with many design companies in Europe, such as in Germany and France, and we know exactly what European requirements are," He says.

He says communication was the key and the company worked closely during the design stages.

"E-bikes will prevail in Europe because they are environmentally friendly and there is good e-bike infrastructure."

However, the sales director says the expected boom in e-bikes across Europe can spell trouble for Chinese e-bike manufacturers, which unlike their bicycle-making counterparts, are not burdened with high tariffs.

"As European demand rapidly rises, some Chinese bicycle makers will enter the market with significantly cheaper but lower quality products and we are concerned the EU will impose anti-dumping measures on e-bikes," He says.

"Our emphasis is on quality but others don't do that and are more focused on price."

China Bicycle Association Chairman Ma Zhongchao says it was unlikely that the EU would apply anti-dumping measures on Chinese e-bikes and components in the short term because the exported technology was developed in China.

However, he did raise concerns for the future as more and more Chinese bikes appear on European roads and cycle ways.

Xie Yanmin, president of King Meter, says the most important factors for Chinese companies wanting to make an impression in Europe are to understand this unique market and ensure the quality of their own products.

"For example, less than one in 10,000 of our products needs repair, and that is the high quality we set," says Xie, adding his company had many business partners in the Netherlands, Germany, France and Switzerland.

The EU's detailed e-bike quality standards go into great detail. For example, products must meet water-resistance levels, pass salt spray and temperature range tests and undergo rigorous vehicle performance examination.

According to Benjamin, before the new standard was adopted, some motor controllers emitted so much electromagnetic interference they would disrupt nearby electronics.

"And we have seen this problem disappear when bikes must be tested to meet EIN 15194," he says.

E-bike battery components were another issue and initially China appeared to have an advantage because of its many battery companies, which were raising technology and at the same time maintaining low prices.

"But the EU e-bike business demands very consistent battery performance and safety and they are willing to pay a higher price," Benjamin says. "So the biggest suppliers of lithium cells to the EU market are Samsung, Sanyo and Panasonic."

"But Suzhou Phylion is selling to the best-selling brand in Europe and this is a great accomplishment and may lead the way to more and more Chinese cells in EU bikes."

Benjamin says as demand for e-bikes spreads across the world, it is only a matter of time before Chinese-made products make more of a name for themselves abroad.

"The established brands of Europe have access to distribution that Chinese brands would not have, but I can still see the famous and big e-bike makers of China having a great future in selling their electric bikes in the EU," Benjamin says.

"It will take years and large investment to develop brand name recognition and access to distribution.

"We can see examples of such success. It is hard work over years, and requires dedicated managers and investment."

Xiao Xiangyi contributed to this story.