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Ch 1: Politics, economy & basic data Sec 3: Foreign investment(China Hand Via Thomson Dialog NewsEdge)Chinese rules limit foreign companies to a maximum 50% stake in joint ventures with local firms, but this restriction is relaxed for export-oriented car ventures of which there is only one at presentthe Honda Motor plant in Guangzhou, which makes engines entirely for export. Some of the large domestic makers have more than one foreign partner. SAIC has JVs separately with GM and with Volkswagen, while Guangzhou Auto has JVs with Toyota and Honda. The foreign partners see no choice but to accept such arrangements if they want a share of the Chinese market, although they acknowledge that they may one day lose international market share to their Chinese partners. Volkswagen AG: The German car maker lost itstop ranking in2005 to GM, which reported sales of 308,722 vehicles in the first half compared with VWs 262,200 units. Bernd Leissner, VWs long-serving head in China, was replaced by Winfried Vahland on July 1st. Mr Vahland has undertaken to turn round the companys operations in China within two years. VW is a victim of a highly competitive market where consumers are highly price conscious and fickle. China is VWs second most important market, after Germany. Its chief executive Bernd Pischetsrieder said in September that the company did not expect to make a profit in China in 2005 and had agreed with its joint venture partners to significantly reduce manufacturing costs. One of its JV partners, First Auto Works (FAW), based in the north-east city of Changchun, announced in June an emergency survival plan aimed at cutting costs by Rmb3bn in 2005. This include: raising the local content level from 60% to 80%, outsourcing as many services as possible and raising productivity, such as turning out a Jetta passenger car in 30 hours by the end of 2005, compared with 35-38 hours a year earlier. According to industry sources, the FAW-VW plant, which makes four VW models, lost Rmb400m in the first four months of the year. VW operates a JV in Changchun with FAW and another in Shanghai with SAIC. Although the two JVs make different models they compete aggressively against each other as provincial barriers to outside car makers come down. VW finds itself unhappily sandwiched between its warring partners. The two JVs refused to purchase parts and components from the same supplier or sell their vehicles through the same distributor, thus running up operating costs for each. General Motors: 2005 was a banner year in China for GM, which generated more sales than any other car maker in China in the first six months. In May opened a new plant in Shanghai, bringing its total annual production capacity to almost 500,000 units. It has pledged to invest US$3bn in China and to increase capacity to 1.3 m units by 2007. Full-year 2005 sales were up by 35% to 665.390 units in China, its second largest market after the US, even better than the 27% increase seen in 2004. GM has been aggressively building up market share by launching new models, heavy advertising and cutting prices, matching its Japanese and South Korean rivals. GM was locked in a legal dispute with Chery Automobile, which has plans to export cheap cars to the US from 2007. It sued Chery in the US for using a brand that resembles Chevy, the abbreviation of GMs Chevrolet brand. It also sued Chery in China, charging that Cherys QQ model was a copy of its four-door Daewoo Matiz and Chevrolet Spark passenger car. GM demanded Rmb80m in compensation and a public apology. In November 2005, the two companies reached an out-of-court settlement, with Chery agreeing to use another brand name for its cars in the US. In China, GM lost the case. Toyota: Japans No. 1 auto maker exported its first car to China in April 1964 and has been slow to set up manufacturing facilities there. For the last three years, it has been racing to catch up with its global rivals in China. It has set itself a sales target of 1 m units, or 10% of the national market, by 2010. This would fit into a plan to control 15% of the global market and displace GM as the worlds largest carmaker. In September 2004, it announced the establishment of a JV with the Guangzhou Automobile Group to build a car making plant in Nansha, near Guangzhou city. The plant, which will have an annual production capacity of 335,000 units, will be ready to roll off 100,000 Camry cars by mid-2006. Separately, Toyotas JV in Tianjin with FAW, aims to sell around 150,000 cars in China, comprising mainly Vios, Corolla and Crown sedans. Fearful of the political risks caused by anti-Japanese feelings in China, Toyota did not produce its first Chinese-made vehicle, a Coaster truck, until December 2000 and its first China-made passenger car, the Vios, until October 2002. However, it enjoys an excellent reputation in China and its brand is well established there. Toyota is using its famous just-in-time delivery system, which advocates minimum inventory, at its Chinese plants. Its Tianjin plant has attracted a supply chain of nearly 200 manufacturers of parts and components, most of which are invested by the Japanese firms that supply Toyota at home. The same is happening in Nansha. Honda: One of the earliest Japanese auto investors in China, Honda has been the most successful. For the first eight months of 2005, it reported sales of 149,285 units, an increase of 28% over the 2004 period. In June, it started to export China-made cars to Europe and Asia, making the company the first foreign car manufacturer to launch a full-scale export operation on the mainland. Hondas exports come from a new factory in the Guangzhou export processing zone. The plant has an annual capacity of 50,000 vehicles and will produce its popular Fit compact, which will sell under the name of Jazz in Europe. Promising to export all the production, Honda persuaded the government to allow it to own 65% of the new plantthe rest of the shares are held by two Chinese firms. This was the first time a foreign firm was allowed to hold a majority stake in a car making JV in China. Hondas foray into car making in China started with its 1998 acquisition of a car plant in Guangzhou vacated by Peugeot of France, leaving the Chinese partner desperate for a new foreign partner. Although Guangzhou did not have a history of auto production, Honda saw this as an advantage as this meant its local partner did not have the baggage of a large state-industrial enterprise with tens of thousands of employees and welfare and pension obligations. Its choice proved to be the right one. It also has a 50:50 joint venture with Dongfeng Motor Co in Wuhan, producing CR-V sports utility vehicles, with an annual production of 30,000 units. Nissan: Nissan has said that it would sell more than 150,000 cars in China in 2005, thanks to a boom year at its 50:50 joint venture with Dongfeng Motor, which sold 66,476 cars in the first half, more than double the 27,204 sold in the 2004 period. It rolled out five new models in China, including minivans, luxury sedans and sports cars. Nissan expects 2005 revenue in China to rise by 25% to Rmb55bn. Like Toyota, it was a latecomer to the China market. It set up a US$2bn 50:50 JV with Dongfeng in Wuhan, Hubei province in 2003. The JV will make passenger cars under the Nissan brand and other commercial vehicles under the Dongfeng brand. Its aims to sell 300,000 passenger cars and 320,000 commercial vehicles by 2007. Like Toyota, Nissan enjoys strong brand recognition after decades of imports. In July, Nissan announced that it might export Dongfeng trucks, the first time it would make vehicles in China for overseas markets. Ford: The second biggest automaker in the US was also a latecomer to the China market. In 2003, it sold just 17,000 vehicles in China, but tripled this to 50,000 units in 2004. Ford plans to invest US$1bn in China in the coming years. It is expanding a joint venture plant in Chongqing to make 200,000 cars a year by 2005. In January 2005, it announced that it had obtained official approval for the establishment of an assembly plant in Nanjing to produce 160,000 units a year. The plants capacity could be expanded to 400,000 units a year. Both JVs are with Chongqing Changan Automobile Co. The Chongqing venture produces Mondeos and Fiestas. DaimlerChrysler: The German-American group has the smallest domestic market share of the big foreign auto makers in China. The group, which was formed after Daimler-Benz acquired Chrysler in 1998, was the first foreign car maker to set up an auto manufacturing JV in China. In 1984, American Motor Corp (which was acquired by Chrysler in 1987) set up Beijing Jeep with local partner Beijing Automotive Industry Corp (BAIC) to make jeeps. The JV did well in the early years, selling mainly to the army and government customers, but as the domestic sector opened up to foreign competition, it could not adjust fast enough and fell into the red between 1998 and 2002. With the arrival of Daimler-Benz, the JV gained access to a better variety of models, including those from Mitsubishi Motor Corp, in which Daimler held a 37.3% stake. The Chinese partner also co-operated in efforts to reduce the bloated workforce, estimated at 8,000 in 2000. This was reduced to around 3,200 by 2003. The redundant workers were offered employment in non-core businesses, according to a BAIC official. The combination of new models, improved sales and reduced costs contributed to a turnaround at Beijing Jeep, which reported its first profit in five years in 2003 at a pre-tax Rmb20m (US$2.5bn). Daimler Chrysler and BAIC both agreed to extend their partnership for 30 years after their 20-year contract at Beijing Jeep expired in 2003. The partners have started another JV to produce the Chrysler 300C (voted the most popular imported model in 20045 in an Internet survey) as well as the Mercedes-Benz E- and C- Class sedans at a new facility in the Beijing Development Area, south-east of the capital. The 50:50 JV, Beijing Benz-DaimlerChrysler Automotive Ltd, started operations in August 2005, with the foreign partner investing US$350m. DaimlerChryslers China strategy contains a Taiwan element, which its major competitors have avoided. In September 2005 Chryslers president and CEO, Tom LaSorda, visited both Taipei and Fuzhou to review its arrangements with its Taiwan partner China Motor Corp (CMC). The result was an earlier decision to license the production of minivans in Taiwan with CMC turned into a new licensing arrangement with CMCs China-based JV, Southeast Motors (SEM), to produce the minivans in Fuzhou for the mainland market. SEM, which has the Fujian Motor Industry Group as its local partner, will produce Chrysler minivans at its existing facility and build a new plant (also in Fuzhou) for making Mercedes-Benz Sprinter and Viano Multi-Purpose Vehicles. Hyundai: The worlds eighth largest automaker rolled out its first Sonata passenger car from its Beijing joint venture factor in December 2002. It forecast sales in 2005 at more than 200,000 units, an increase of about 60% over 2004, with income of Rmb18bn. The Beijing plant aims to increase production capacity to 300,000 in 2005 and 600,000 in 2008 and to increase the level of local content to 80% in 2005, up from 77% in 2004 and 60% in 2003. Its affiliate Kia Motors has a joint venture with Chinese auto makers, Dongfeng and Yueda, in Jiangsu province, to make passenger cars. The plant has a capacity of 130,000 units. It expects to obtain a licence to offer auto financing in early 2006. Hyundai is very aggressive in marketing and promotion, sponsoring the Beijing soccer team that bears its name, supplying taxis to the capital and is closely involved with the citys preparations for the 2008 Olympics. BMW: In the first six months of 2005, BMW, a leading maker of premium cars in the world, sold 9.427 vehicles in mainland China, of which 7,034 were assembled by a joint venture with Brilliance China Automotive. Sales in greater China, including Taiwan and Hong Kong, climbed 3.2 % in the period to 13,852 vehicles, versus 50,071 in Asia. Despite prices varying from US$48,000 to $ 84,000, which put BMWs out of reach of all but the wealthiest, the company says it has a long order book. Its popularity is due to its brand and lack of direct competition from domestic producers. Its customer profile in China is similar to that overseasthe chief executives of private companies, bankers, architects and other members of the rich class. |