Chinese car producers warm up for export race

By Bill Smith Nov 17, 2006, 12:27 GMT

Beijing - 'The Chinese are coming, it's only a matter of time,' one China-based auto executive said of an expected surge in exports of Chinese cars to Europe in the next few years.

Thousands of auto designers, technicians and engineers are busy preparing scores of new models for the next rounds of competition in China's car market, and many manufacturers anticipate major export drives to follow.

'We laughed about the Japanese when they came with their first cars,' the executive said. 'I hope we are more intelligent with the Chinese now.'

As top executives from multinational auto giants gather in Beijing this weekend, many of the latest models will be shown at the Beijing International Automotive Exhibition.

The executives will be looking beyond their strategies to increase their share of the still rapidly growing Chinese market, with exports on the horizon for most firms.

China exported just 32,000 of the 5.7 million cars it produced last year. It also exported about 90,000 trucks and 16,000 buses and minibuses in 2005, according to Chinese customs statistics.

With car production surpassing Germany last year, China is now behind only Japan and the United States.

Its exports are forecast to double this year, and industry analysts see China's auto industry growth continuing for the next 10 years.

So far the exports are mainly to other developing nations such as Malaysia, Iran, Syria and Russia, and Chinese firms are planning joint-venture productions in South-East Asia and Latin America.

But exported cars have already begun to trickle into Belgium and Italy, mostly Honda Jazz and Chery QQ models.

Association of South-East Asian Nations (ASEAN) Secretary General Ong Keng Yong last month highlighted the expected growth of Chinese auto exports as he urged the government to spread the benefits of China's vast manufacturing industries.

Chinese auto firms should invest in component plants in ASEAN nations for assembly in China and then export completed vehicles to the ASEAN countries, thus helping to reduce ASEAN's trade deficit with China, Ong said.

Meeting the higher quality standards of developed nations remains the main challenge for Chinese exporters, the Hong Kong division of KPMG said in a recent report on China's car market.

'Raising quality and safety levels, building brand equity and establishing distribution services and networks have been some of the key hurdles for domestic manufacturers looking overseas,' KPMG said.

Chinese-branded cars increased their market share in China from 14 per cent in 2004 to 26 per cent in 2005 and 28 per cent in the first half of 2006, KPMG said.

The Chinese government has promoted the auto industry as a 'pillar industry' in the last decade, building hundreds of new roads, encouraging car ownership and investing relatively little in public transport.

Cheap compact models from Chery, Geely and other Chinese firms have rapidly gained market share with cars costing as little as 4,000 dollars.

Geely has plans to test the US market, while Chery has reportedly held talks with DaimlerChrysler on a possible joint-venture to export compact cars to the United States.

Volkswagen, which leads car sales in China, has already exported parts worth about 1 billion euros from China this year, sources said.

Looking further into the future, Chery will show the first hybrid model developed by a Chinese firm at the Beijing auto show.

Rival Geely plans to begin mass production of a hybrid model next year, as Chinese car producers narrow the technological gap with rivals in Europe, Japan and the United States, state media said.

But a flood of Chinese exports is unlikely until the Chinese and foreign firms have satisfied the appetite of domestic consumers.

A recent consumer survey by AC Nielsen suggests that about 20 per cent of households own cars in the major cities of Beijing, Shanghai and Guangzhou, compared with just 4 per cent in 2004.

Despite rising taxes and fuel prices, 13 per cent of consumers in the three cities said they were considering buying a car in the next 12 months, the survey found.

The Chinese market will 'hit a wall when everyone who can afford a car, has a car,' auto industry researcher Burce Belzowski of the University of Michigan told the US-based Investor's Business Daily last week.

'That's when China will become a big exporter,' Belzowski said.