BEIJING - With concept vehicles, trinket give-aways and cars, cars, cars, Auto China 2000 seems well-equipped to lead the Chinese people into the automotive age. Known locally as the Beijing Auto Show, last month's event expected 460,000 visitors to swarm the China International Exhibition Center north of the city for an international car show now second in Asia only to Tokyo's famed motor show.
Despite a sprawling complex of eight enormous halls, the exhibition center could barely contain the hordes of curious hoping for a glimpse of everything from sleek Italian Ferraris to efficient no-nonsense Japanese Suzukis. The masses that pooled outside of the show, hoping either to sneak in on VIP-only day or buy a pass from a scalper, didn't seem to mind the city's double-whammy of 95degreesF temperatures (35degreesC) and 95% humidity. The lucky ones inside patiently weathered claustrophobic conditions for a glimpse into their automotive future.
Reflected in the madhouse atmosphere were plenty of signs that Auto China is entering the big leagues.AG, with a 55% market share in China, reigned over the largest territory in the best exhibition hall, enticing crowds with Euro-chic dance troupes and loads of freebies amid a display of dozens of vehicles.
Corp. brought over three concept cars - something no automaker has previously thought to do in China - in an attempt to show Beijing that it is capable of more than the sedate Buick sedan and minivan built at its new Shanghai joint venture. The Chevy Triax, Cadillac Evoq and Buick Rendezvous created a palpable buzz, especially because GM officials were eager to "not rule out" the possibility of building the Rendezvous crossover sport/utility vehicle at the Shanghai plant.
But most of the show's attention doglegged past the big players' flash and dash, focusing instead on small vehicles that most Americans would find pedestrian. The VW Polo,Alto, Punto, and Scenic, among others, all garnered more attention than any entertainment act could muster.
The reason is that the Chinese people for the first time were attending the show not, as one auto executive put it, "as visitors to a museum," but as potential consumers. Private-car ownership finally is coming of age in China, where the state and big corporations still make most car purchases.
Luxury cars especially are experiencing an unexpected spike in private sales. Audi AG, which just began assembly of the A6 in Changchun, saw half of its initial sales go to private consumers, a number it sees rising to an unprecedented 70% by year end. "It's like half the country woke up one day and decided to be drivers," says Andy Okab, vice president of Beijing Jeep Corp., a JV between DaimlerChrysler AG and Beijing Automotive Industry Corp. (BAIC).
Automakers are betting such growth will trickle down to the economy car segment, anticipating the private consumer market to break open in a big way. The result: a distinctively proletarian auto show serving as center stage in the battle to build a "people's" car. The search for a utilitarian entry vehicle for the masses long has been China's automotive Holy Grail.
Though the majority of China's 1.3 billion people don't drive, even a paltry increase percentage-wise translates into impressive numbers, which is why global automakers are willing to commit large investments into a market that saw passenger car sales of just over a half million units last year.
The Chinese government, which holds veto power over vehicle program proposals and only allows foreign makers in through joint ventures, up to now has put tight restrictions on small-car projects - the reason GM is building a $44,000 Buick in a country where the average wage is $600 per year.
But as China teeters on the brink of entry into the World Trade Organization, all that is changing. State officials, for example, recently approved a deal forMotor Corp. to build its 1L "New Basic Car." South Korea's Kia Motors Corp. seemingly got immediate approval to build its Pride model with Yueda-Kia Automotive Co. Ltd. VW now has the go-ahead for a small-car venture, and GM is in final negotiations to get approval to build an Opel Corsa-based car.
Other automakers acknowledge that a small car is critical to their survival as well. Peugeot SA, which builds outdated models at its-Citroen Automotive Corp. JV, says it has new models coming, displaying the economy-model Picasso front-and-center at its show stand. Motor Co. Ltd., which is enjoying success with its Guangzhou-built Accord, is rumored to be in pursuit of Civic car production.
Motor Co., which long has been angling for a passenger car, featured as its show centerpiece the Ikon, a Fiesta-based vehicle made in India for the Indian market. "We're going back to when Henry Ford founded Ford Motor Co., with a product with the highest quality, lowest cost, that people can afford," says Mei Wei Cheng, Ford China Ltd. chairman and chief executive officer.
The Ikon, Mr. Cheng tells WAW, could be adapted for China, a similar developing market, and says a passenger-car deal is imminent. Notably, the Transit van, the only productbuilds in China through a JV in Nanjing, was displayed in a far corner.
Malaysia's state-owned, which does not build or sell cars in China but has ample experience in developing markets, was at the show to test the waters and learn about the Chinese consumer, rather than introduce its products. For foreign automakers, the stakes are high: large investments; a Chinese partner with a different and sometimes hidden agenda; a still emerging market; and an unpredictable government controlling the country's progress from planned to free-market economy.
An Qinghen, president of BAIC, says the "people's vehicle" should be a mini-vehicle priced between 8,000 and 30,000 renminbi ($966 to $3,623). Lawrence B. Zahner Jr., former president of GM China and newly named chief of GM's Asia/Pacific manufacturing operations, says the ideal people's car must seat five comfortably - mother, father, the customary one child and one set of grandparents.
The car that will hit the bullseye is anyone's guess. The crystal ball gets murkier when factoring in China's pending WTO entry. Locals agree that the only thing predictable about China's automotive future is that WTO membership will turn the industry upside down.
China sees WTO entry as an opportunity for many business sectors, but it presents a major challenge for automakers. Membership stipulates that China must roll back protective automotive import tariffs from current levels of 80% to 100%, to 25% by 2005.
"Because of the trend of economic globalization, our biggest challenge comes from the accession into the World Trade Organization," says Chen Yinda, vice president of Shanghai Automotive Industry Corp. (). "Currently, both the SAIC group and its subsidiaries are weak in technology and product development, in market competition and in preparedness for risks.
"Our further development," he continues, "is also constrained by such problems as rising labor and production cost, low productivity and limited number of professionals and skilled personnel." Despite the laundry list of weaknesses,, which operates through JVs with VW and GM, seems among the best prepared to tackle the free market.
That's because WTO entry will force industry consolidation, a necessity to which China has been giving lip service for years. Of China's approximately 120 automakers, the top six - with SAIC as No.1 - account for more than 90% of production. Experts say the need for consolidation has the potential to kick off a merger-and-acquisition spree throughout China. There are signs it has begun. GM and SAIC recently confirmed they are in a joint bid to buy Liuzou-Wuling Mini-Vehicle Corp., a leading mini-vehicle producer, located in southern Guangxi province.
Competition will not, however, be a benefit for all. Without intervention from DaimlerChrysler, Beijing Jeep Corp. is certain to struggle in the wake of heightened competition. Hampered by an outmoded facility and a product no longer in demand, BJC has watched sales of its aging Cherokee plummet.
The good news is that WTO entry should remove layers of Chinese bureaucracy, including the mandate that foreign automakers must enter China through a JV in which they may not own more than 50%. Plus, regional governments will be forced to lift protective tariffs against vehicles made in other regions, further leveling the playing field.
WTO membership also opens up the use of China as an export base. With so much competition and so few car buyers, China's top tiers may only be able to achieve economies of scale through exporting. Some, such as GM and SAIC, say exporting to other Asian countries has been part of their plan all along. They are quick to add that it doesn't make economic sense to export China-built cars to the U.S. - one of the reasons the United Auto Workers union voiced opposition to the U.S. granting permanent normal trade relations status to China, a prelude to WTO membership.
But no matter how things shake out, WTO membership is bound to be a boon to the budding private-car-buyers' movement here. Competition means more choices, heightened quality standards, affordable prices - factors sure to drive China into the automotive age.