China SDRC's reform in auto production categories unlikely to succeed - analysts
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Date-Time: 2003-7-28 15:54:43 BEIJING (XFN) - The China State Development and Reform Commission's changes in automobile production categories aiming to limit the number of local and small auto producers and cool overheating in auto investment are unlikely to succeed in the short term, analysts said. The commission issued three announcements last week effectively halting the production of hundreds of domestically-produced models. Analysts said local governments naturally want to develop and protect their own key industries, so it will be very hard to carry out widespread reforms in certain regions. Jia Xinguang, a senior analyst with China National Automobile Industry Development and Consulting Corp, told XFN that due to the rapid development of China's auto industry and strong vehicle demand, many domestic investors are rushing into this sector. It is forecast that China's sedan output will be 1.8 mln units for the full-year 2003, after rising 100 pct year-on-year to 903,400 units in the first half of the year. China produced 1.062 mln sedans in 2002, up 52.8 pct year-on-year, with sedan sales up 50 pct to 1.058 mln units, the National Bureau of Statistics said. "These investors usually have state-sector background, and do not care about the outcome of their investments, as most of their capital is from banks," Jia said. But smaller domestic auto plants can hardly compete with international giants, such as Volkswagen AG (ADR VWBP), General Motors Corp (NYSE GM) and Honda Motor Co Ltd (NYSE HMC), as they cannot independently develop new models, Jia said. "Foreign companies have already started to take precautions to prevent the leakage of their intellectual property rights, and once small domestic manufacturers can no longer copy foreign models, they will have only one destiny - disappearing from the market," he said. He said in developed countries, the auto industry is monopolized by a few select giants, and China will also eventually follow this track. Despite overheating in auto manufacturing investment, foreign investors will not withdraw from China in any significant way as the country is a rapidly growing market, Jia said. "Nobody can afford to stand by and watch, so foreign companies will continue to invest in China, even if it is a gamble. And unlike domestic producers, they have the capital to gamble," Jia said. Moreover, international companies not only manufacture their models in China, but also export them to the country, which will soon fully open its borders to auto imports, Jia said. Under China's WTO commitments, vehicle import quotas will be decreased 15 pct annually from the six bln usd in 2000 and be completely lifted by 2005. Zhu Xuedong, an auto analyst with the Skyone Securities Co Ltd, said another attraction to foreign investors is inexpensive labor in China. "I think foreign companies will further increase their investments in the mainland because all of them want to dominate in this market, and the trend could be seen from the recent expansion of Sino-foreign joint ventures," Zhu said. Volkswagen's management board chairman Bernd Pischetsrieder announced in mid-July that the company plans to invest 6.0 bln eur in China in the next five years and build two new factories to double production capacity to a total of 1.6 mln units annually by 2008. Almost at the same time, Japan-based Nihon Keizai Shimbun reported Toyota Motor plans to invest around 30 bln yen and jointly produce passenger cars with China's Guangzhou Automobile Group Co by 2005. The report said Toyota is aiming for a 10 pct share of the Chinese market by 2010. Zhu added stiff competition will squeeze many domestic small auto manufacturers out of the market at length, and bankruptcies of these firms will further burden the growing unemployment problem in China. wang.teng@xfn.com
ow/ap
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