THE directors of Shenzhen China Bicycles Co (SCBC) expect a positive response to its forthcoming HK$262 million five-for-one B-share rights issue. Of its major institutional shareholders, all but one have indicated that they intend to take up their full allotment. Even if some hold back, the SCBC board says it has some interested qualifying shareholders ready to step in and fill the gap. Qualifying shareholders have been provisionally allotted one B rights share for five B shares held, at a price of 8.70 yuan a share, payable in full on acceptance at HK$8.10. This represents an 11 per cent discount to the stock's average closing price last week. The company also intends to raise 182 million yuan (about HK$244 million at the official rate) before expenses from a rights issue of A shares. SCBC's remaining founders - Hong Kong (Link) Bicycles, Shenzhen Municipal Light Industrial Co and Stephen & Partners - have all said they intend to exercise their full A-share rights, so the company's basic shareholding structure should remain unchanged. The cash call, with Standard Chartered Asia as underwriter, began subscription last Friday and is due to close on January 14. Despite the recent cool response to rights issues by other Shenzhen-listed firms, the directors at SCBC are oozing with confidence. And rightly so, according to Barings analyst Jason Chung Lik. Mr Chung said SCBC was a league above China's two other listed bicycle counters, Shanghai Phoenix Bicycle and Shanghai Forever Bicycle. ''It is best on the management side, has the best equipment and very good experience in the high-end bicycle market,'' he said. It is also one of the first listed mainland companies to switch to international accounting standards. The fund-raising exercise is primarily to provide it with cash to build its wholesale and retail networks in China, which make up the focus of the group's present expansion plans. It is one of the largest exporters of bicycles in the world, with a workforce of more than 3,000. They churned out more than two million bicycles in 1992. About 45 per cent of its production was under the well-known ''Diamond Back'' trademark and exported to 31 countries. But with recession and protectionist anti-dumping legislation putting the brakes on SCBC's rapid growth in Europe, the company feels that it should focus its attention on the wealth of opportunities in its own backyard in China and Southeast Asia. ''At the back of last year we focused our philosophy on to China itself, recognising the potential opportunity that had been staring us in the face for some time,'' said SCBC executive director Stephen Codron. The group has established 26 central retail outlets and wholesale distribution companies for bicycles as well as parts, accessories and sportswear under the Diamond Back and Emmelle brand names. It intends to have about 30 shops and wholesale distribution companies in China by the end of this year and 100 by the end of 1995, at a combined cost of 235 million yuan. SCBC executive director John Barker said: ''Our outlets will not be like the ugly black bike shops you see in China at the moment. They will be modern and fashionable concept stores. ''There is very limited competition in China at our quality level.'' The average retail price of SCBC's bikes in China will be 1,000 yuan, compared with 300 to 500 yuan charged by its competitors. The same range of models sells in Europe for an average price of US$400. SCBC believes China is on the verge of a motorcycle revolution and next year intends to test the market with a few thousand motorised bicycles and 50 cc, 75 cc and 125 cc motorcycles. The group intends to make the frames and assemble the bikes themselves, but import engine parts from perhaps Europe, Taiwan or Japan. Another weapon in SCBC's growth plans is its US$1 million investment in the newly formed China Composite Material Products Co (CCMP) with a mystery, but supposedly well-known, 50-50 joint-venture partner. The identity of the partner is being kept a secret. An even bigger secret is a manufacturing process for composite materials being developed by the company for bicycle parts and other products, which it says will be revolutionary. These materials are expected to have great development potential in space technology, aviation and car manufacturing markets. Production is expected to begin in April. In the meantime, CCMP's research and development laboratories at SCBC's 400 million yuan factory at Longhua, Shenzhen, are being kept strictly under lock and key.