PAKISTAN BICYCLE INDUSTRY AFFECTED BY LOW-PRICED CHINESE BICYCLES

BY SYED FAZL-E-HAIDER
Dec 03 - 09, 2007

Pakistani bicycle industry has reached on the verge of collapse due to the low-priced Chinese bicycles, which have made it harder for the local bicycle industry to compete on the basis of price with China. Most of the bicycle-manufacturing units in the country have almost shut down due to increasing cost of production. Pakistani bicycle market is struggling to establish itself due to smuggled bicycles coming from China and high raw material prices.

The illegal import of Chinese bicycles at dumping prices has been a matter of concern for Pakistani manufacturers. The bicycle manufacturers have long been asking the Pakistan government to take immediate steps to safeguard the indigenous bicycle industry. Last year, 430,000 bicycles, according to an estimate, were smuggled into Pakistan and 449,400 bicycles were produced. Chinese bicycles have affected the local bicycle industry, as production of bicycles has declined, posing a threat to the jobs of thousands of workers, as well as a revenue loss to the government..

A number of bicycle making industries in Pakistan have succumbed to the mounting pressure of low-priced Chinese varieties. While the Chinese bicycle for children with its superior design, attractive appearance and accessories is currently being sold in the range of Rs 2000 to Rs 3500, the locally manufactured bicycle of the same quality is available in the market at a price which is Rs 400 higher than the Chinese bicycle. The large size locally made bicycles cost in the range of Rs 3,500 to Rs 4000, whereas Chinese varieties are selling at Rs 3,200 to Rs 3,500. it is however a fact that the prices of both locally made and imported bicycles have been soaring due to the soaring steel and raw material prices and rising cost of rubber. A steep decline in demand is generally attributed to the decline in the purchasing power of the bicycle riding section of the country's poor.

Pakistan is a major manufacturer of bicycles in South Asia. Its bicycle industry is capable of producing 1.45 million bicycles per annum. With its 80% share, Sohrab is the local bicycle manufacturer that dominates the local bicycle industry as key player and the rest of the production is shared by six other bicycle manufacturers. Sohrab produced 532139 units of the bicycle in the year 2003-04. Today, a new manufacturer can only survive and establish itself in the local market if it concentrates on fancy bicycle segment or enter into a joint venture agreement with some internationally reputed firm. In 1998-99, first time $11,000 worth of bicycles were exported from Pakistan. Today, the domestic bicycle industry has almost collapsed turning former manufacturers into bulk importers of the two-wheelers, supplying them to local vendors across the country.

A few years ago, Pakistan was not only capable of producing in bulk but also exporting bicycles to African countries besides Afghanistan and Iran. In 2003, a total 629,695 number of bicycles were produced and 681,448 number of bicycles were produced in 2004 thus showing the growth rate of 8.22%. There is very low export presence of Pakistan in this sector. For the first time in 1998-99, US$11,000 worth of bicycles were exported from Pakistan. According to one estimate, there are 300 bicycle vendors in Pakistan, employing 3000 workers. These vendors buy raw material worth Rs49 million and after value addition sell it on to the manufacturers for Rs98 million. There are some 3000 assemblers, employing 9000 people and cater to the Rs1.71 billion new bicycles demand and Rs2.78 billion replacement bicycle market.

Prices of both locally made and imported bicycles have been soaring due to the soaring steel and raw material prices and rising cost of rubber. A steep decline in demand is generally attributed to the decline in the purchasing power of the bicycle riding section of the country's poor.

Pakistani bicycle producers are losing a significant portion of their protected market. The free trade situation demands for the creation of an enabling environment without any protectionist policies. The serious policy issue is what may happen to the domestic market under free trade regime with the China. The situation is not very encouraging for the domestic bicycle producers. China has an edge in this product as it makes available its bicycle in Pakistan with free trade at a cheaper price than can Pakistan bicycle producers do in China.

The bicycle industry is already suffering from the smuggling of low cost products from China. As a result of free trade with China, both the government and producers are likely to lose whereas the consumers are likely to gain significantly. For Islamabad there is a need to determine the impact of free trade environment with China, which has gained access to Pakistani market under FTA.

Presently, the Chinese products have penetrated deep into Pakistani market. Local private sector feels suspicious about China, as it has become a hard fact that cheap Chinese products have driven many local manufacturers out of domestic market. Astonishingly, numbers of Chinese exports from China to Pakistan do not match the numbers reflecting Pakistani figures of imports from China showing much larger exports from China. Under FTA deal, the China can sell Pakistan more and more goods ranging from household items to textile plants and highly-sophisticated and latest technology items, besides getting cheap raw material.

Some independent economists view that a weaker country is always given some advantages to protect its industry from adverse impact making the free trade agreement really beneficial for both the signatories. But in Pakistan's case the status of China as supplier of most of consumer goods would further get a boost as Pakistan has already been flooded with cheaper Chinese goods almost of all kinds. Definitely China would see expansion in their business and its trade surplus will further rise to new horizons as Pakistan has less to offer to the economic giant and importing more from there.