CHINESE HARLEYS
June 9 2004, Harley-Davidson, has announced the signing of a 'memo of understanding' with the Zongshen Motorcycle Group which could facilitate Harley-Davidson's entry into the Chinese motorcycle market and enhance Zongshen's capabilities in its home market. The announcement came during a visit by Harley-Davidson Chairman and Chief Executive Officer Jeffrey Bleustein and other company officials to Zongshen's headquarters in Chongqing, China.

Both companies emphasized that the memo of understanding provides a framework for a potential relationship, but that many details are yet to be discussed before the two companies commit to a formal agreement.

"Harley-Davidson's primary objective is to export our American-made motorcycles to China and to develop political and motorcycle industry alliances in anticipation of the market becoming more accessible," said Bleustein. "We do not believe it will be necessary for Harley-Davidson to manufacture its motorcycles in China in order to be able to sell them there," he said.

Under the contemplated relationship, Harley-Davidson would work with Zongshen to gain a better understanding of the business practices, markets and distribution channels it will encounter in China. Zongshen is a recognized leader in the Chinese motorcycle industry. "We believe there is a lot we can learn from working with a company that has intimate market and industry knowledge in China," said Bleustein.

Harley-Davidson would share certain technology of a non-competing nature, as well as marketing philosophies and practices with Zongshen, under the contemplated agreement.

"In China, there are hundreds of motorcycle companies. However, Harley- Davidson is known around the world and throughout China for its outstanding reputation," said Zongshen Motorcycle Group Chairman Zuo Zongshen. "Harley- Davidson's status as an American-made motorcycle has a strong appeal here, and we believe an association with Harley-Davidson holds solid value for us in China," he said.

While in China, Bleustein is also pressing Harley-Davidson's case for market entry with government officials. The day before his visit to Zongshen, Bleustein met in Beijing with China's Vice Minister of Commerce, Wei Jianguo, to urge the easing of official and unofficial trade barriers that limit Harley-Davidson's ability to sell its premium American-made motorcycles in China.

Those barriers include a 50 percent import duty on motorcycles. The duty is scheduled to drop to 30 percent by January 2005, a level which is still onerous according to Harley-Davidson. In addition, local governments in China often limit the number of motorcycle licenses they will grant, and motorcycles are singled out for outright bans from operating in many of China's largest cities.