West carmakers grabing share of China market

Updated: 2004-06-01 14:09

BMW became the latest heavyweight investor on the Chinese car market this week with the opening of its own factory in Shenyang, the capital of Northeast China's Liaoning Province, making China one of the biggest foreign production sites for German automakers.

The Bavarian-based BMW group counts among the latecomers on the scene when it comes to setting up shop in the burgeoning Chinese auto industry.

While fellow German carmaker Volkswagen began production in China in the mid 1980s and last year sold more cars in China than in its home market, BMW only formally opened its first production facility this week in Shenyang.

A joint venture with Brilliance China Automative Holdings Ltd, the US$300-million plant, which will produce both BMW 3-series and 5-series models, boasts a manufacturing system and technology as advanced as those found in other BMW factories around the world.

Helmut Panke, BMW CEO, said the plant marked a defining moment for the company. "To build one's own production plant for the premium class deep in the Chinese heartland is a milestone to make Asia, after the U.S., into the largest overseas market," he said.

"You're seen as a responsible investor, as a part of the economy and society. We expect that in China too and in that sense Shenyang is the second phase in the internationalization of the BMW group."

The most optimistic forecasters believe that car sales could touch 3 million this year, taking China past Britain (at 2.6 million) for the first time. If China were ever to reach the levels of car ownership in America, there would be 600 million cars on its roads — more than presently exist in the entire world.

China's hunger for cars is driven by the rise of its economy, which grew 9.1% in the first quarter of this year, and is now the world’s sixth-biggest. Chinese factories swallow a third of the world's coal, nearly 30% of its steel and 40% of its cement.

All the automotive multinationals are scrambling to grab a share of the Chinese market.Foreign carmakers led by Volkswagen have invested more than US$12 billion in China, with 13 automakers setting up 20 joint ventures.

This week one of China's big three car makers, Dongfeng, which has a joint venture with Nissan and another with Peugeot Citroen, said it was thinking of setting up a new one with Renault.

French carmaker Peugeot confirmed it would double annual output to 300,000, while German Audi began importing its A8 saloon at an asking price of US$232,000.

Last year Chinese car sales amounted to 2.1 million. The Chinese Association of Automobile Manufacturers (CAMA) forecasts they will hit 5 million by 2010 and 20 million by 2020, the third-largest in the world behind the U.S. and Japan.

"The Chinese market is developing extraordinarily dynamically. There's already a market for two million cars, in 2002 it was only one million. That shows how robust the growth is," Panke said. "And we think that even the premium segment will develop strongly in the next years and then we'll have to see whether we need to broaden the production."

For now the majority of the car components for the Shenyang plant will be imported and the cars will be assembled under the guidance of 50 German experts. However the factory will soon aim to localize about 40 percent of the production process.

BMW has already had a taste of what the booming Chinese market has to offer.

In the first four months of this year the BMW group saw sales growth of 41.4 percent for its three brands -- BMW, Mini and Roll-Royce -- in China produced locally by the joint venture using existing assembly lines. BMW is thus the only carmaker in the premium segment that produces locally in China.

It's an example that others are hoping to emulate. Last month DaimlerChrysler signed an agreement with visting Chinese Prime Minister Wen Jiabao in Germany for the manufacturing of Mercedes limousines of the C and E-class.