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Manufacturers, Exporters, Wholesalers - Global trade starts here.
Self-development Key for Local Car Makers

You might have only known one brand of Chinese car - Red Flag - a few years ago if you were not an industry insider.


Named by late Chinese leader Mao Zedong, Red Flag is the most time-honoured Chinese car brand. It has been produced by the nation's biggest automaker First Automotive Works Corp (FAW) since the 1950s.


Today, a slew of new Chinese car brands, such as Geely and Chery, have emerged and become popular among domestic consumers.


However, they remain too weak to contend with foreign brands in China, the world's fastest-growing car market.


Chinese brands will be besieged by foreign manufacturers during the 11th Shanghai International Auto Show, set to open tomorrow.


At present, 100 car brands are available in China, of which only 37 are Chinese, according to industry statistics.


Foreign brands control nine-tenths of the domestic car market as almost all the world's auto giants have formed joint ventures with Chinese partners to produce their cars in the nation.


Some observers say the scenario is not that bad.


It is narrow nationalism to put an emphasis on Chinese brands just because they develop by themselves, unnecessarily as some believe. Instead, they could use existing technologies owned by foreign makers under the context of globalization, they say.


Their views are shortsighted and superficial.


On no account should Chinese car manufacturers give up their independent development capability, nor their brands which sit top of the value chain and represent the industry's core competition. But neither should foreign technologies and brands be denied entry to the country.


Most Chinese car makers, even the nation's top two State-owned brands - FAW and Shanghai Automotive Industry Corp - are nothing more than cheap labour for foreign auto giants due to a lack of strong independent development capability and branding.


Chinese car makers have squandered huge amounts of capital on technology transfers whilst failing to enhance their own development capabilities.


Furthermore, Chinese car producers would be discarded as partners by foreign giants if the latter were permitted to set up wholly-owned manufacturing plants in China.


The future looks bleak for local brands if this were the case, as foreign brands would dominate China's car industry and market.


The auto industry has been a major growth engine of China's economy, with the domestic car market forecast to increase to 6 million units around 2010 from 2.4 million units last year.


Even with such rampant growth, Chinese car makers are unable to compete with their foreign counterparts. They face the pressing task of building strong independent development capabilies and brands, which is not something that can be done overnight.


But one light at the end of the tunnel is the low end market, on which Geely and Chery have focused, as this is an area largely ignored by foreign firms in China.


Both Geely and Chery, which have avoided teaming up with foreign auto companies, have succeeded in establishing their independent development capability and brands in the low end market.


Geely, the former motorcycle producer, is owned by Li Shufu - one of the nation's richest people - and based in East China's Zhejiang Province.


The company has sold more than 300,000 low-cost cars since it started to produce own-brand cars in 1998.


Geely's sales exceeded 100,000 units last year, compared with less than 90,000 units reported by French carmaker PSA Peugeot Citroen's joint venture with Dongfeng Motor in Central China's Hubei Province.


The Sino-French joint venture began production in the mid 1990s.


Chery, controlled by the local government of East China's Anhui Province, began to produce own-brand cars in 1999.


Accumulated sales of Chery have reached 300,000 units to date.


Chery also leads other domestic makers in exports.


It exported more than 8,000 cars last year.


Both Chery and Geely are moving upward in their product lines.


The latter launched the Meirenbao sports car at the end of 2003.


The Meirenbao is the first Chinese-made sports car and its symbolic significance for China's car industry is far reaching, although it is no match for the sports cars of global players in terms of power, prestige or luxury.


Chery will also unveil a sports car, the Chery M14, during the 7-day Shanghai auto show. The model was designed by Italian auto-design firm Pininfarina.


To make Chinese manufacturers strong in their development capability and branding, the government needs to open the industry further to outsiders, rather than pumping investment into the industry.


Simply put, the government should allow more Chinese enterprises into the industry.


Currently, most of the auto-making resources in China are controlled by State-owned companies with ties to foreign partners as a result of a decades-long planned economy.


And the government has strengthened barriers to investment in the sector from non-auto related firms.


Domestic automakers which "could not maintain normal operations" are forbidden to transfer their production permits to non-auto companies, motorcycle producers and individuals, according to a new national auto industry policy released last June.


If an automaker in China goes under, so do its production permits.


Total investment in any new auto venture in China should be no less than 2 billion yuan (US$241 million) and it must include at least 500 million yuan (US$60.4 million) for a research and development centre.


But, strong independent development capabilities and brands cannot be built only through government selection but market competition.


Geely and Chery both rose amidst such competition.


Most of China's State-owned automakers are busy assembling foreign cars and appear to have no time to upgrade their self-sufficiency and develop own-brand vehicles.


The truth is there are many Chinese firms outside the industry eager to step in.


Lifan, one of China's largest motorcycle producers and based in Chongqing Municipality, unveiled a self-developed sedan last month and is waiting for the official nod to make and market the 1.6-litre sedan.


Also last month, AUX, the privately-owned home appliance maker in Zhejiang, announced it would withdraw from the car industry because it failed to get the green light from the government.


(China Daily April 21, 2005)


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