In China, as in the whole world, cars now rule the ball. Although the country takes only 109th place in the world in the number of them per capita (10 cars per 1000 people), in the capital with 15 million people there are 3 million of them. The Celestial Empire’s motorization is rapidly growing: 20 years ago 85 thousand cars were produced here, in 2004 - 5.2 million!
Catch up and overtake JAPAN
How did such an unprecedented economic miracle succeed? The Chinese helped their own special way - the so-called state capitalism. About ten years ago, they invited the generals of the global automotive industry and offered them to create a joint venture to assemble their famous brands in China on the most favorable terms. “Go ahead,” called the foreign automakers, “before you is the immense and completely unsatisfied market of the country!”
The tempting offer was quickly accepted - in five years, 1999-2004, more than $ 20 billion was invested in the local auto industry! Another 9 billion will be invested in the coming years. Today, almost all world brands are collected in China - from the popular Volkswagen to the elite Lexus. At the same time, import of new cars is strictly quota - 30 thousand per year, and duties are still high (in the late 90s, 200%, now 80-100%). New enterprises are exempted from paying many taxes for the first 3–5 years; labor in China is fabulously cheap, so production in China is extremely profitable. According to Chinese data, Volkswagen, for example, has a margin of 15% (on average it has 2%), and GM has 19% at all … It’s not surprising that auto production is growing like mushrooms: it’s busy assembling cars today there are about 120 enterprises, not counting the two and a half thousand that work for them, supplying components and materials. In the Chinese market today they sell a total of more than 500 models of 80 brands!
According to Liu Shijin, a leading specialist at the Center for the Study of Development Problems under the State Council of the PRC, China’s GDP has increased by an average of 9% over the past 10 years, and annual growth in the auto industry has exceeded 15%! If this pace continues, then by 2006 China will become the third largest automobile manufacturer in the world, after Japan and the United States. And UN experts go further, predicting that by 2010 China's auto industry will come in second place. Goodbye, Japan!
The trouble came, from where they did not wait. The local market in the country with a population of 1.3 billion people was considered vast and therefore were ready to increase the production of the same cars almost to infinity. It turned out that this is far from the case. In May last year, the Chinese auto industry first encountered the problem of overstocking: in the parking lots of the 1st automobile corporation FAW alone (it is the largest in the country), up to 100 thousand unsold cars were accumulated. Specialists rushed to believe and found out that more than 5 million cars (about 1 million trucks and 4 million cars) are not able to digest the local market - most people have too low incomes. Meanwhile, even at existing facilities you can produce much more! The way out was obvious: export! “By 2010, export sales of the Chinese auto industry should grow 20 times and reach $ 100 billion,” recently said Chinese Deputy Trade Minister Wei Jianguo. True, there is one snag here: most joint ventures are bound by agreements obliging them to work only on the domestic market. But in the country there are many enterprises free of such obligations. Now their share in total production is 30%, but by 2010 it is projected to reach 50%.
We visited one of these - the car factory of ZXAuto company, located in the "small" city of Baoding (population over 6 million people!) Of Hebei province. This company was the first to introduce its Admiral cars on the Russian market.
The plant was founded in 1949 and specialized in the repair of army equipment. Today, all buildings are new. Since 1989, the company switched to the production of “peaceful” pickups and all-terrain vehicles, now occupying the second place in the country in this sector. It is entirely private: 33% of the shares are owned by a Taiwanese investment company, 50% are owned by plant managers, and 17% are owned by employees. There are nine models on the conveyor. They are also sold abroad - in the Middle East, in Africa, Latin America, and now in Russia.
“All of our models are of our own design,” says Chen Renhua, CEO of the company. - True, the frames were created with the help of specialists from Korean KIA, licensed engines (Toyota, Mitsubishi, Isuzu), gearboxes too (Aisin).
Pickups and SUVs in their design and design are very similar to the models of Japanese companies, but, we assume that this is a consequence of the fact that engineering is developing in one direction. Anyway, if the model at least by some parameters today is similar to the Japanese one - this can be taken as a compliment …
Black May also made ZXAuto executives think. Then they (the first in China!) Looked hopefully at the North, towards Russia. As it turned out, their cars, although they were reliable, did not pass by a number of our standards, and they sinned with the quality of the finish.
“In a few months, with the help of our Russian partner, the Beijing Jeep, we eliminated all the shortcomings, changed the design of the brakes and headlights, and certified cars according to your requirements,” explains Chen Renhua. - And now we have developed a new, modern model of an all-terrain vehicle and we hope to show it in Russia in the near future. By the way, your enterprises have already shown interest in it, and with two of them we even signed agreements on the intention to begin assembly in your country.
Despite the fact that even today Chinese cars are inexpensive (the same pickups are sold at a price of $ 13 thousand), their base price with a Russian assembly, according to the most careful estimates, can drop to 10–11 thousand per car!
FIGHT OR
FIT?
About a year and a half ago, at the conference “Automotive Industry of Russia”, AvtoVAZ leaders warned that the Chinese market would soon be oversaturated when an armada of Chinese cars surged into other countries, including Russia. It was also said that this threatens us with a “second Russian automobile revolution”, similar to the one that flooded the market with used foreign cars in the early 90s. They emphasized: new Chinese cars, acceptable in quality, inexpensive (they are much cheaper than Japanese, Korean, and even some of ours!), Can threaten the Russian auto industry. And today several large Chinese manufacturers are ready to enter our market …
Fighting cheap Chinese cars is traditionally offered in one way. In the light of the “Chinese threat”, the president of the Russian Automakers Association, Evgeny Levichev, proposed increasing import duties on new foreign cars to 35% or more (now 25% - ed.). If such an offer still passes, foreign cars will rise in price, perhaps by a year or two, until mass local assembly is established. Against the backdrop of the rise in price of foreign cars, Russian factories will immediately raise prices - until now, all the impulses of the state to protect the domestic auto industry only ended there.
So what should Russia do in such a situation? Resign yourself and wait, when a wave of inexpensive “cherie” and “ksiali” will wash away even the memories of GAZ from the face of the earth? Let's not rush to predictions.
The flow of cheap goods from China actually creates a certain threat to the economies of developed countries, but they have long understood that it is useless to deal with this - we must cooperate. They found an effective means against consumer electronics fakes - to build modern enterprises in China and place the production of this electronics there. Today, all the world’s grandees, from Motorola to Sony, have factories in China; the consumer ultimately won the price cut. So in the auto industry. According to some reports, all major global automakers today make up to 30% of their components in China. In general, China is considered as the most attractive base for the production of cars for export to Southeast Asia and other neighboring countries, and components for the rest of the world. That is how the auto brands hope over time to integrate the Chinese auto industry into the global auto industry system.
