first-time visitor to China's capital city would be hard-pressed to identify telltale signs of a wobbly economy - particularly when it comes to the nation's automotive industry.
Beijing highways are jammed with vehicles of every make and model, from increasingly sophisticated domestic brands to models from every country exporting automobiles there. And, thanks to a thriving black market, even from countries that don't.
But make no mistake. It's crunch time for China's automakers, with third-quarter automotive production slumping by 16.7% from second-quarter levels. The declining trend is blamed on slack market demand and a rising stockpile of new cars. Chinese families, dealing with uncertain times, are postponing plans to buy a car or opting for cheap mini versions. Although minicar sales are enjoying a run, an extended price war has eroded profits.
Before the summer floods and Russia's recent economic meltdown, and despite Asia's currency problems, China was holding its own, with production and sales of automobiles expected to surpass last year's figures. The industrial-added value of China's automobile industry was to grow about 9% this year and China's registered automobiles were to top 13.61 million units.
At least two foreign joint ventures -Corp.'s Shanghai Buick and Motor Co. Ltd.'s Guangzhou Accord passenger car plants - still expect to come on line this year or early next. Rudolph A. Schlais Jr., president of General Motors Corp.'s Asia-Pacific operations and chairman of GM's Shanghai Buick joint venture, remains optimistic about China's car market. "Private buyers are increasing a little faster than what we anticipated," he says. "There are a lot of people with disposable incomes in China. We recently conducted a ride-and-drive of our Shanghai Buick at the Beijing auto show, at which 1,500 people committed to buy the car."
The $1.57 billion Buick plant begins operation this month. Official dedication will be in December, and cars will go on sale next April. Annual output will begin at 20,000 units, with a goal of 100,000 within five years. Prices are expected to begin in the $30,000 range.
China's passenger car sales have slowed, Mr. Schlais admits, but luxury car sales still are growing by 5% year-to-year. "Most sedan markets would kill to have that," he says.
GM Chairman John F. Smith Jr. shares Mr. Schlais' enthusiasm over the Buick plant. "We're hoping that with the product we have going into that plant that it will be a very good return."
, paid a reported $200 million to take over the money-losing plant in Guangzhou from Peugeot SA (winning out over GM's bid). It is hoping to see profits from its Accord model sooner than later. Honda entered on better terms than Peugeot, with a 50% stake. That gives it equal footing with partner Guangzhou Automobile Group. Production is to begin in February and will be limited to 30,000 units a year for the first three years and 50,000 after that.
A recent study shows demand for cars by Chinese individuals has surged by an average 28.1% each of the last five years, but no one really knows the long-term effect this year's natural and man-made catastrophes will have on the market. As the year draws to a close, the Chinese government insists that demand still will generate 1.66 million vehicle sales in 1998 and that the country will produce close to 1.7 million units. China last year turned out 1.58 million vehicles, while 1.56 million were reported sold. Sales of passenger cars in 1998 are expected to reach 548,400 units, compared with 474,200 for 1997, accounting for one-third of the total demand for motor vehicles.
Skeptics argue that production capacity of China's automobile industry is bloated by 30% to 50%. And they add that more foreign joint ventures are likely to be approved, introducing even more competition.Motors Corp. already is building the Pajero in a special deal with the military. SA has just signed a letter of intent with the mayor of Beijing to assemble a version of the Scenic, a car-based SUV popular in Europe. And DaimlerChrysler AG may resurrect plans to build minivans in China. GM also is rumored to be adding minivans to its Shanghai Buick line.
With such sobering thoughts, China's top domestic makers have stopped spinning their wheels. They have formed a pact not to boost sales by selling cars below cost anymore, after cutthroat competition caused huge losses. Continuing the momentum, the central government says it will clamp down on the flood of smuggled automobiles and auto parts entering the country. It also plans to bolster the automotive sector with a stimulus package - including tax cuts and easier access to bank credit and foreign capital. Auto manufacturers also will be given priority in seeking stock and debt issues and will be given increased financial independence.