CHINA: King of the roads

BEIJING/SHANGHAI—Let's get another thing clear. The omnipresent automobile is one indication that a country has arrived. And China has. The sleeping dragon has awoken from its deep slumber and is now breathing fire.

By Patrick Michael (Deputy Editor)

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Published: Tue 12 Jul 2005, 10:16 AM

Last updated: Thu 2 Apr 2015, 4:38 PM

The first sight that greets you as you step out of the sprawling Beijing airport terminal and settle into the waiting black Volkswagen Santana —- the people's car' — is the four-lane road that will take you to the Central Business District that's choc-a-bloc with high-rises of different shapes and sizes. The road is spic and span and tree-lined with criss-crossing flyovers that twist and turn like a dragon's tail. It's simply awesome.

Next, as the Santana revs up, picks up speed and merges into the highway traffic, you notice the shiny Japanese, South Korean, European and American cars. Thousands of them gridlocking the city. It's a bumper-to-bumper ride into downtown, but the driving is disciplined — unlike Dubai. Speed limits are adhered to strictly. Tailgating and rash overtaking is unheard of, at least I was witness to none. Everything is done in an orderly fashion. Sticking to the rules is a way of life here.

It takes 60 minutes to enter CBD and as you drive past the capital's floor-to-rooftop glass skyscrapers I have my eureka moment. China is rising. And how!

The millions of cars on the highway in the capital city of 16,800 square kilometres and a population of almost 14 million are proof enough that China is going places. From auto importer she has now turned exporter.

In the 80s, it was Japan who changed gears and ate in into the American market. Now they — and the rest of the car-manufacturing world — have a serious Chinese challenge on their hands. And they say that one of the best places to witness the scope of the challenge is in Guangzhou, a city of over 12 million people.

On June 24 this year, the first 150 Chinese-made cars were lifted onto a ship bound for Europe. The cars were manufactured at the Honda Motor Factory situated on the outskirts of Guangzhou. It was the first sign that China meant serious business and would follow Japan and South Korea in taking on the world and building itself into a global competitor.

And the challenge from China is being taken seriously. Given its huge labour force, the cost of producing a car is dirt cheap compared to the West. The Chinese workers at a car assembly line earns roughly $1.50 in wages and benefits, compared to $55 an hour for General Motors and Ford factories in US.

The assemly line workers in white are all young, healthy and raring to perform alongside the robots that whirr, turn, dip and weld parts of the cars. Slackness is not tolerated. The workers are only too aware that there are a thousand others waiting in line to grab any opening. They work hard and they work well with German-like precision.

China today is the boxing ring and the fight is on. The grand prize is for the massive auto market. Many a manufacturer has been bloodied in the fight to capture the market title, but no one is giving up. It's far too lucrative a market to hang up the gloves and turn off the engine.

Some global car manufacturers are purring with delight. They have already captured four-fifths of the Chinese market with almost all of them — Japanese, South Koreans, Europeans and Americans — having pitched their tents here even as state-owned car makers build their own brands, their strategy being “to simply follow the international suppliers and sub-contract from them” as one car analyst put it.

It is a do-or-die battle on the auto field with domestic car owners, despite having made inroads in the low-end of the market, finding the going tough. But there is room for all— and many more players — as millions of Chinese migrate into the cities for a taste of the city life.

In Dubai, it was once said that the best car to buy was the one that the taxi-driver drove. The reasoning was faultless. Dubai's cabbies clock more kilometres in a day than you would in a month and therefore he would pick a car that would last, and last, and last, with the minimum of wear and tear.

In Dubai it was the Toyota. In China the same reasoning holds good, only, it is the Volkswagen Santana. It's the taxi driver's car, be it in Beijing, Nanjing or Shanghai. You throw a stone and you will hit a Santana. Even now. It's the taxi driver's favourite. But, like Dubai, it may not be for much longer. German cars are fast losing out to the Japanese and South Koreans.

The demand for cars is growing and according to a Volkswagen study, it is expected to rise from 2 million units in 2004 to 2.9 million this year and 5.7 million by the year 2010 — an annual growth rate of a little over 10 per cent.

But the recent slowdown in car sales would mean that car makers in China would have to go back to their drawing boards and redraw their strategies.

The last couple of years has been tough on automakers Volkswagen and General Motors, the two who first stepped in to tap China's huge wheels market. Their foresight and early entry helped them become the market leaders. Not any longer. Honda of Japan and Hyundai of South Korea are giving them a run for their money — as they are doing elsewhere in the world.

Now spoilt for choice the Chinese are becoming pickier. The days when there were only two or three models to choose from are gone. The car market is being likened to the mobile market where suppliers have to keep rolling out new designs, more features and offer more incentives, just to keep ahead of the competition. And this is where both Volkswagen and GM are being hit hard. They just don't have enough competitive models in the small and middle segment.

"European and US car makers have strong brands but are less competitive in small cars in either design or price," Yale Zhang, a Shanghai-based analyst with CSM World Corp, a US auto consultancy, told the China Daily in an interview.

In his study on the auto market, Yu Qiao, writing in the same newspaper, says that while Volkswagen has vowed to regain 25 to 30 per cent of China's car market, industry observers say it a "mission impossible", now that the company's market share has dropped to below 19 per cent in the first quarter of this year from 25 per cent last year.

The one laughing all the way to the bank now is South Korea. Hyundai has made deep inroads into the car market and Kia, now part of Hyundai, has already claimed the battle has been won and South Korean brands would dominate, along with some Japanese brands.

According to Gong Zhengheng writing in the China Daily, "between January and May the sales of Hyundai Motor's joint venture (JV) in Beijing, with Beijing Automotive Industry Holdings (BAIC). Surged more than 90 per cent year-on-year, to 85,900 units. From eleventh among China-based car makers in 2003 it has climbed the car chart to the fifth position in 2004 and second this year, snapping at GMs JV in Shanghai which has the top spot."

Japan's Honda is the other rising star on the auto horizon and, together with Hyundai, is eclipsing all the international car firms including Volkswagen, GM and PSA Peugeot Citroen who have been in China far longer.

According to Jia Xinguang of the China Automotive Industry Consulting and Development Corp, "Japanese and South Korean car makers have a lot more products that are much more suitable to the Chinese market than do their European and US rivals."

Toyota and Nissan too are said to be revving up their engines and expanding their presence. Toyota aims to control 10 per cent of the market by 2010 while Nissan hopes to sell more than 300,000 cars in China annually.

Meanwhile, Chinese car firms are eyeing the export car market and are ready to take on the West. The privately owned Chinese mainland car maker Geely Automobile said last week it was in talks to buy British collapsed automaker MG Rover's moulds and production equipment business and that it intends to build its cars in Hong Kong.

The car, says Geely, will be in the mid-to-high-range model. The company that saw its exports rocket to over 150 per cent last year, selling more than 3,000 cars, expects to sell 10,000 cars this year.

Later this year, the first shipment of the Chinese-made Honda Jazz cars will arrive in Europe and in the next five years the Japanese company plans to manufacture 50,000 cars with its partners Guangzhou Auto Group and Dongfeng Motor Group Co. All 50,000 of them are for exports to the European Union!

Not be left out, DaimlerChrysler is, according to the Guardian, reportedly in negotiations to build a factory near the capital city of Beijing to produce cars for export to North America.

The Chinese "invasion" is on in full force and is being looked on in the West with some fear. It is only a matter of time before European consumers will be driving Chinese-made cars. That they are being gobbled up faster than they can be exported is proven by the sales of the first Landwind vehicles manufactured by Jiangling Car Company. Two hundred of them were unloaded at Antwerp on July 5 and all of them were sold at almost half the price of rival models by better-known European, American and Japanese and Korean brands.

The five-door 4x4s went for a mere 18,000 euros. The argument that it's just 200 of the lost-cost cars that were sold does not hold no water. This, says the Guardian “is just the advance party of the Chinese invasion” and taking it lightly would be stupid, given that the new wave of Chinese-made cars comes at a time when the country's economic might is being felt all-around the globe.

The EU is already worried about Chinese shoes and is seriously considering imposing tariffs, the US has the biggest trade deficit with China triggering calls for China to revalue the yuan and then there are the plans of China's state oil company, China Offshore National Oil Corporation (CONOC) to buy the US energy company Unocal.

China seems to be in a win-win situation backed by the injection of cheap capital from the state and cheap labour from the world's biggest population.

The world is finally sitting up and taking notice of the China rush into the overseas markets and the day is not far when even the UAE and the rest of the region will see Chinese-made, cheap but value for money cars on its roads.

According to Business Week, China's manufacturing capacity will nearly triple in two years to almost 15 million vehicles a year — about double the forecast demand.

Many of the gleaming Chinese cars are modeled on the lines of European ones and this has sparked criticism from many quarters. But it's not just the Chinese who are doing it. The South Koreans are no worse in copying established western brands.

Geely's chairman, Li Shufu, is unaffected by the criticism. "Joint venture will fade away over time. In the future, it will be private Chinese companies that will rule the industry," he said in a recent interview.

Yes, seismic changes are afoot and China is rocking the world's auto industry — and its economic order.

The author's tour to China was facilitated by the Dubai-based Chinamex



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