Chinese cars end up sidetracked in emerging markets

A funny thing happened on the way to China’s drive to build a world-beating auto industry: It got sidetracked.

Instead of Chinese cars finding a ready market among its newly affluent people, and then establishing itself in developed markets where Japan and South Korean car makers have already blazed a trail, China’s auto-sector may be stuck in a blind alley.

Since 2009, a majority of the world’s cars have been assembled and purchased in China. Foreign brands such as Buick have profited the most from China’s auto boom.

And foreign brands are quick to use local talent to promote their brands. Daimler co-financed a film starring Ge You, who played an older man in the throes of a midlife crisis taking solace in his Mercedes Benz.

And Daimler hired mainland actress Fan Bingbing to advertise a Mercedes SLK. It’s hard to imagine Fan Bingbing stooping to endorse a JVC or a Geely, both Chinese-made, but lacking the cachet of the German luxury car giant.

It’s equally hard to imagine Chinese entertainment figures rocking up to a premiere in a Cherry QQ, or getting behind the wheel of a Haval H3, or a Geely Micro Panda.

Despite being the world’s largest auto market, Chinese cars are almost unknown and largely overlooked in China.

Foreign brands dominate mainland roads, and only in developing markets are Chinese brands making inroads. They are making their presence felt in places like Eastern Europe, Africa, South America and the Middle East, where JAC, Lifan, Geely, Cherry, and Great Wall motors are all opening factories, pnew cars on the roads, and advertising their wares.

Chinese carmakers have a simple strategy: Ignore the Chinese market, which is clearly smitten over foreign brands.

Last month the Cherry Celer was released in Sao Paulo, advertised on Cherry’s website as the company’s first Brazilian-built car.

Manufacturing locally is a strategic move by China’s carmakers to sell their products in Brazil, South America’s largest and fastest growing economy. In 2011 The Rio Times reported that imports of Chinese cars rose 35 per cent.

The Rio Times reported that Brazil has responded to this new competition by imposing a tax on imported cars to keep local manufacturing jobs steady. That’s why Cherry’s establishment of a new assembly line is crucial. That’s the idea behind opening foreign factories. Most countries want to start looking after manufacturing jobs and depend less on imports.

Anhui Jinghua. has also opened a Brazilian plant, and Cherry has opened new factories in the Ukraine, Argentina, and the Philippines.

In January this year, Geely started operating a new factory in Belarus, employing 3,000 people in the town of Borisv, a new Special Economic Zone. Geely cars are flooding Eastern Europe, capitalising on a market that the west has largely ignored. Despite growing into Fortune 500 companies, mainland carmakers’ profiles remain surprisingly low in the domestic market.

But they are raising their profile in some surprising places.

Geely recently purchased Sweden’s Volvo, and also owns the company that makes London’s iconic black taxis. In last year, Great Wall Motors opened a factory in the Bulgarian town of Lovech, which the official English-language China Daily billed as the first Chinese assembly line creating jobs in the EU.

Chinese carmakers have found ready buyers in some surprising markets, including Iraq, prompting Cherry to boast on its website that ‘Cherry Shines at the Baghdad Auto Show’.

According to a report from Iraq Business News, a leading online publication, not a single car was made in Iraq until China started investing in the Iraqi economy in 2007. Iraq is now a manufacturing hub for Lifan and Great Wall Motors.

Chinese carmakers are ignoring political upheaval to venture into markets like Egypt, where Geely opened an Egyptian factory in 2010, just months before the Arab spring, a wave of protests, and civil unrest that began in December 2010, forcing rulers from power in Tunisia, Egypt, Libya, and Yemen.

Lifan Motors, which owns a plant in Ethiopia, has become a trusted brand in the region, and was endorsed in an Ethiopian Broadcasting Service report as “affordable and easy to manoeuvre”. East African chat room participants joke that Lifan is “the best Chinese car (that) the Chinese have never heard of.”

Chinese road construction has gone hand in hand with the drive into Ethiopia, with mainland contractors building roads to link Ethiopia’s formerly sparse and disconnected cities to gain loyal consumers and helping to kick-start the nation’s economy. Lifan’s success can be seen in its endorsement by Eyob Mekonnen, Miss Ethiopia 2010, helping lift its cachet in the east African country.

The influx of Chinese roadbuilders is no coincidence. Countries with Chinese-built highways tend to buy Chinese cars.

In 2007 Cherry opened its first Iranian assembly line, and shortly after a Chinese construction company was cleared to build the world’s second longest highway tunnel in Tehran. Since its 2009 opening, Chinese cars have flooded the roads of a nation shunned by the United States and the European Union.

Creating jobs helps Chinese brands earn loyal customers.

For a roadmap to Chinese carmakers’ next destination, check out road construction contracts won by China’s state-owned construction firms, which are building new highways in Malaysia, Pakistan, and a swathe of Central Asia.

In 2009 China Wuyi Corporation began a major highway construction project in Kenya, connecting the Nairobi with surrounding cities. The highway opened last year and shortly after the opening ceremony Africa Ventures, a business publication, reported that Cherry Autos had won a contract to produce police vehicles in Nairobi.

Soon Kenyan police will be at the wheel of Cherry Tigos, while anyone they arrest will end up riding in the back of a Chinese-built vehicle on a Chinese-built road.

In the same year, (2009) a Chinese construction firm built Sri Lanka’s first trade port, at a time when the country was still recovering from decades of civil war.

Chinese workers subsequently built the southern highway linking the city of Galle with Colombo, the nation’s capital, helping stimulate the economy and beef up demand for affordable (Chinese) cars. At the last year Colombo auto show one of most well received models was the Geely Micro Panda soon to be made in the Sri Lankan city of Hambantota. Chinese auto-makers with Sri Lankan plants have an edge over Indian models, which face a new import tax.

Last month International Business Times, an online US-based newspaper ran an article posing a simple question: why don’t Chinese carmakers make cars that Chinese people want to drive?

It’s a good question. Part of the answer could lie in the lingering distrust for Chinese products that Chinese people have in the wake of a slew of scandals involving counterfeiting or adulterated products. In possibly the worst to date, six infants died and thousands were sickened when Chinese milk powder was deliberately contaminated with melamine.

Chinese people know that imported goods are likely to be safer and higher quality because the companies that manufactured them want repeat business.

As a result, China’s innovators and entrepreneurs and thousand of jobs are flowing overseas while foreign goods are piling up on Chinese wharves.

And there’s no sign that Chinese people are going to fall out of love with foreign brands any time soon.