Car Manufacturers

Reality bites for South Korean model

PUBLISHED : Monday, 05 June, 2006, 12:00am
UPDATED : Monday, 05 June, 2006, 12:00am

In the beginning there were supposed to be three major car hubs under the mainland's plans to model its vehicle sector along South Korean lines.

Government policy in the 1980s was to have Changchun, Wuhan and Shanghai leading the car-manufacturing charge, with smaller hubs in Tianjin, Beijing and Guangzhou.

'But, as China opened up, the reality did not go along with the plan. Now the central government has to stand by and accept the ranking changes under irresistible market forces,' State Information Centre senior economist Xu Changming said.

Mr Xu said a lack of policy enforcement meant 31 mainland cities have car plants and almost 66 per cent of those wanted the sector to be an industrial backbone of the local economy. The biggest uncertainties over the industry are in Guangzhou, Chongqing and Wuhan. Last year, Guangzhou produced 420,000 vehicles, 6.7 per cent of the national total. Its car output of 407,000 units was second only to Shanghai and topped Jilin's production for the first time. The provincial government expects car output to reach 500,000 units this year and more than one million units in 2008. It also hopes car production capacity will reach 1.3 million in 2010, with value of 200 billion yuan.

Jia Xinguang, consulting and development chief analyst at the China Auto Consultancy Group said Guangzhou's development approach had proved successful.

'Investment by Honda and Toyota has brought along many Japanese component and spare part suppliers to the Guangzhou vehicle industry zones. The production chain is an important basis for further development,' Mr Jia said.

The investment also has paid off for Japanese car makers. Honda set up its production centre in Guangzhou in 1998 and since then almost every model it has launched has been a mainland success. Toyota's ventures in the city also have paid off since getting under way in 2004.

'There is no question that Guangzhou is a good market because of its robust economy. It's the city's greatest advantage,' Toyota China office chief representative Etsuo Hattori said.

Guangzhou has defined the industry and its spare parts sector as economic 'pillars' since 2003 and hopes to put 1.4 million cars on the road each year by 2012, driven up by 17 per cent annual growth in sales. Guangzhou Economic and Trade Commission director said Yu Youxin said: 'Undoubtedly, Guangzhou will produce more passenger cars than Shanghai this year, with the roll-out of Toyota's Camry in May which has an estimated annual production of 100,000 units, the completion of Honda's second plant in the second half of this year, and completion of construction of Dongfeng Nissan's third production line.'

But not all analysts are optimistic about the potential for a local product. 'Guangzhou should be down-to-earth. It is not well prepared to focus on developing its own brands right now because it is still inferior in technological research and capacity to innovate,' Mr Jia said. 'A more realistic approach is improving its competitive edge in providing components and related services.'