IMPROVED living standards have increased business markedly for Chinese motorcycle manufacturers in recent years, and they have scrambled to expand production and forge ties with Japanese motorcycle producers The fast-growing market is controlled by China Jialing Industrial Company and Jianshe Industry Corp in Chongqing, both under the umbrella of Norinco, which was responsible for more than 30 per cent of the mainland's motorbike production last year. An austerity programme has squeezed sales of four-wheeled vehicles for the past two years, but the demand for motorcycles has soared, because they have become affordable household items. China's total motorbike production increased to 5.2 million last year from 3.3 million in 1993, and is expected to reach eight million this year. A Xinhua (the New China News Agency) report has said that China will become the world's largest market for motorcycles, with demand estimated at 11 million in 2000. Experts predict there will be 45 million motorcycles in China by the end of the century. In fact, the mainland is largely an unexploited market. Ownership of motorcycles represents only one per cent of China's population, far lower than the world's average of three per cent. In Taiwan, the penetration rate is 53 per cent and in Japan more than 30 per cent. Jialing's propaganda department director Chen Anfu said: 'When people's disposable income reaches a certain level, they will buy a motorcycle before being able to pay for a car.' Jialing makes motorcycles of 50 cc, 55 cc, 70 cc, 90 cc, 125 cc and 145 cc, with prices ranging from 1,000 yuan (about HK$930) to 10,000 yuan. 'If a motorcycle is priced below 10,000 yuan, people will still have money to buy it. If it is more expensive, it will become a luxury,' Mr Chen said. Jialing has been transferring Honda technology for making motorcycles since the 1980s. It established a joint venture with its Japanese partner in 1993 that will put Honda's latest 125 cc double-cylinder motorcycles on the road at an ex-factory price of 28,000 yuan, tapping the high-end market. Jianshe is basing its technology on Yamaha, with whom it formed a joint venture in 1992. But the two largest motorcycle giants are being pressured by their small challengers. 'More and more people are beginning to realise that there is competition from domestic small manufacturers,' Baring Securities analyst Michael Lin said. He said sales of some of Jianshe's products, including the 50 cc, 60 cc and 80 cc models, had been affected by small factories that bought lower quality components at cheaper costs from suppliers in east China. A Jianshe 50 cc motorbike sells at an ex-factory price of 2,100 yuan, but those made by small manufacturers come at one-third of Jianshe's price. 'We have seen that actual turnover is affected by small manufacturers,' Mr Lin said. He expected that the price would hold up this year, but there would not be much room for an increase next year, except for 55 cc scooters, because Jianshe was one of the few producers of that model in China. Motorcycle manufacturers boast that they are immune to the credit crunch, but they still feel the pinch. Mr Lin said Jianshe had extended credit to buyers to stimulate sales during the austerity programme. He estimated that Jianshe would produce 980,000 motorbikes this year, slightly lower than the company's initial projection of more than one million. There are restrictions capping the growth of demand for motorcycles. In Shanghai, a driver has to pay 2,000 yuan for a licence, of which a limited tally are issued annually. Manufacturers' profit margins are also being squeezed by taxes. On top of 33 per cent income tax, Jialing has to absorb a 10 per cent consumption tax on motorcycles and a city construction levy. 'If we pass on the levies to the clients, they may find it too expensive to buy a motorcycle,' Mr Chen said. Jialing plans to produce more than one million motorcycles this year and achieve an annual production of two million in 2000 with sales of 7.3 billion yuan.