Germany's Linde has chosen Linde-Xiamen Forklift Truck Corp as its manufacturing base for the region - despite the fact that its Chinese partner's technology is at least two generations old by Western standards. 'The German company chose Xiamen Head Corp as its partner among six candidates introduced by the Ministry of Machinery and Electronics Industries,' joint venture production department director Pan Buchan said. 'One of the reasons that Linde chose us [Xiamen Head] was that despite our forklift truck technology being the most outdated in China, we didn't have any co-operative relationships or links with other foreign companies,' Mr Pan explained. Mr Pan, the former head of Xiamen Forklift Truck Factory, the key shareholder in Xiamen Head, acknowledged that through neglect, the factory's technology had grown sadly obsolete. 'The company's good sales and profits backfired on us, in fact, making us lag behind others because we didn't feel any urgency to invest in new products,' he said. 'Many state-owned factories upgrade their technologies only when their products have lost competitiveness.' By 1994, Xiamen Forklift Truck's turnover had slumped to 120 million yuan (about HK$111.5 million) and its net profit to eight million yuan. 'Eventually, the factory decided to upgrade its technology and production standards in order to cope with increasing competition,' Mr Pan said. Most of the 17 large forklift truck manufacturers in China have by now adopted technology from countries such as Japan, South Korea and Britain. 'We formed a new company, Xiamen Head, to form joint ventures with foreign parties,' Mr Pan said. The joint-venture contract was signed in 1993 in Beijing during the visit of German Chancellor Helmut Kohl. It was Linde's first direct investment in the Asian region. The new Linde-Xiamen Forklift Truck Factory required a total investment of 200 million marks (about HK$896.8 million). The German firm holds 70 per cent and the mainland party the remainder. 'The old plant is producing low-end forklift trucks, but I think it will be phased out in the next few years,' Mr Pan said. The term of the joint venture is 50 years, with a production capacity of 15,000 units annually. Turnover is expected to be 4.5 billion yuan per year once production targets are met in 2002. Mr Pan said Linde-Xiamen started production in 1995, assembling 1,000 trucks that year and recording turnover of US$30 million. Production capacity should increase to 3,500 units this year from last year's 2,000 units, he said. A weak technology base had been the Chinese company's main problem, said Mr Pan: 'Our German partner was very frank - they said our technology level was equivalent to the standard of two generations ago in Germany.' From the start, Linde put its emphasis on technological upgrading, promising to train 900 technicians over three years free of charge in Germany and to transfer its forklift-truck technology to the joint venture. The last batch of technicians is due to depart for European training this year. In return, the Xiamen municipal government charged the joint venture a nominal one yuan for 50-year land-use rights to the 220,000-square-metre site of the factory in Longshan Industrial Zone. To lessen the financial burden on Linde-Xiamen, the 70 Germans currently employed in the joint venture are on the same salary scale as local staff. 'Although these people also receive payment in Germany, the move reduces our burden,' said Mr Pan. The plant now employs 1,200 workers. This should increase to 3,600 once full capacity is achieved. Mr Pan said the German partner took a longer view than most foreign investors in the Xiamen special economic zone. 'The joint venture hasn't made any profit since it started production in 1995,' he said. 'We expect it will be able to break even next year, when annual production reaches 5,000 units, and start to make a profit in 2000. 'The return period of the whole investment is 15 years from the commencement date, meaning 2010,' he said. China allows Linde-Xiamen to sell 70 per cent of its products domestically. Mr Pan said the joint venture had exported very little to Asian countries in the past two years because product quality had yet to reach Linde's standards. 'In the beginning, we imported parts from Germany and assembled them here,' Mr Pan said. 'We will continue to upgrade the quality and increase the ratio of localisation from the current 60 per cent.' Mr Pan said the Xiamen venture lacked the capability to manufacture the entire Linde forklift truck line, and this would be the case for at least 10 years. Linde's patented hydrostatic transmission system presented a particular problem because it was so technology-intensive. Linde-Xiamen now produces 16 different models at an average sale price of 300,000 yuan, probably the most expensive forklift trucks in China, prices which Mr Pan said meant only medium and large enterprises could afford the products. 'But market response is good as the brand name itself is a guarantee,' he said.