China’s Design on Europe Has Auto Industry Worried

FRANKFURT – Chinese auto makers are hungry for new overseas markets, and Europe seems to be at the top of their target list.

Recent figures released by the European Commission show China’s trade surplus with the European Union in "vehicles and other machinery" for the year’s first half was $23 billion and still climbing.

Earlier this year, a worried Commission set up CARS 21, a high-level "stakeholder consultation," to find ways of improving the competitiveness of the EU automotive sector. (See related story: Auto Groups Say EU Needs Wider View in Regulating Industry)

The Chinese were present in force at this month’s Frankfurt auto show, with three major companies signaling their intention of becoming major players here. (See related story: Chinese Auto Makers to Debut at Frankfurt)

"We clearly see China as a future player throughout the world, and they seem particularly set on entering the markets in Europe," says a spokesman for the European automobile manufacturers association (ACEA).

Jiangling Landwind SUV

“Ten years ahead, we think they will compete in all world markets, not just Europe, as equals in size to (current major auto makers). Their main competitive asset will be price. Their products will not be comparable to cars made in other countries, where technology is more developed."

The German automobile club ADAC recently road-tested the Jiangling Motors Group Landwind, a Chinese 4-wheel-drive SUV that sells for about €17,000 ($21,130). The vehicle is the first Chinese-made vehicle available in Western Europe and is nearly half the price of competitors.

ADAC said it was the worst vehicle it had ever tested for safety and suggested the SUV be barred from European roads.

"China has huge potential in terms of what we can supply to them and what they can supply to us," says a spokesman for Britain’s Society of Motor Manufacturers and Traders. "But the initial offerings from China, particularly those shown at the Frankfurt show, don’t inspire much confidence.

"There is a feeling that Chinese vehicle manufacturers will have to up their game to meet the standards required for the European market,” he continues.

“You could argue that with their strategic partnerships with Western auto manufacturers they have the capacity to up their game in the short to medium term.

“Does that mean they will become a long-term threat in terms of large volumes in the European markets? The answer I suppose is yes," he concludes. “But presumably prices will have to rise to reflect the better quality of vehicle.”

Analysts say that almost as dramatic as the rise in car production in China – the country is predicted to overtake Japan as the world’s No.2 vehicle manufacturer by 2010 with output of over 6 million cars annually – has been the rush of investment there by Western auto makers. (See related story: The New China)

This has led to overcapacity, falling prices and slashed profits in China’s domestic market, hence the rising interest in exports.