Chinese firm speeds up to overtake foreign rivals

Foreign carmakers investing billions in China to tap its fast-growing market is passe. In recent years, the two-decade-old cliche has been making way for a new theme, as Chinese auto companies such as Beijing Automotive Industry Holding Co decided to go global with its easily serviceable and inexpensive products.

BAIC is one of China's largest automakers in terms of sales. It will complete building three global manufacturing bases in South Africa, Mexico and Yunnan province's Ruili by the end of 2017. This should help it to compete with established global rivals such as Toyota Motor Corp and Ford Motor Co.

BAIC will also build more than 100 after-sales service centers in five major regional markets: North Africa, North America, Southeast Asia, Central Asia and Eastern Europe, which could brighten its brand image and bolster its sales networks.

Xu Heyi, chairman of BAIC, says Chinese vehicle manufacturers that used to rely on gaining easy money through joint venture brands are shifting focus to global markets as growth in the domestic markets has more or less bottomed out.

The company has set for itself a sales target of 300,000 units globally by 2020 through exports and overseas factories and different assembly lines. It will also deploy more resources in markets that are part of the Belt and Road Initiative.

The initiative, proposed by the Chinese government in 2013, envisages a Silk Road Economic Belt and a 21st Century Maritime Silk Road covering about 4.4 billion people in more than 60 countries and regions in Asia, Africa and Europe.

China's 15 major automakers, including Chongqing Lifan Group and Great Wall Motors Group, have established 61 overseas plants. They produced more than 270,000 vehicles in different regional markets last year, data from the Ministry of Commerce show.

They have also created a $19.7 billion export market for auto parts from China.

BAIC, which has subsidiary joint venture companies including BAIC Hyundai Motor Co Ltd and Beijing Benz Automotive Co Ltd, had adopted the original equipment manufacturer business model for its Mexico factory initially. The idea was to limit its investment to a certain level, to pre-empt large losses due to possible political uncertainty.

With an investment of 5 billion yuan ($762 million; 681 million euros) in South Africa, BAIC plans to produce up to 100,000 units per year at its new manufacturing base in Port Elizabeth from 2018.

Construction will begin next month and production in November 2017. The Port Elizabeth factory is expected to entail the largest one-time investment in South Africa and even Africa.

It will be operated as a joint venture with the involvement of South Africa's Industrial Development Corp, which is a financial company providing capital support for the country's enterprises and investment projects.

The new manufacturing base will produce passenger vehicles, sport utility vehicles, minivans and vans. It will create 2,500 jobs directly, and more than 10,500 jobs for upstream and downstream industries indirectly.

"Continued foreign and domestic investment in infrastructure development, such as roads and town expansion, will be key factors for sustained economic growth in our five major regional markets, especially in Africa and Southeast Asia during the next decade," Xu says.

Buoyed by the surging demand for new vehicles in Africa, BAIC established a minibus assembly plant that employs more than 500 people in Springs, town in South Africa, in 2013.

Xu says the company will increase its investment in its South Africa production base and the assembly plant in Nairobi, Kenya, to produce pickups and light trucks.

As China and other partners are accelerating the pace of the ongoing negotiations to upgrade the free trade agreement between China and the Association of Southeast Asian Nations, Xu says the company will add more products and part-fund warehouses in its manufacturing base in Ruili by the end of 2017, to compete with foreign brands in Southeast Asian markets.

The Chinese company has already built a number of plants and research and development centers in India, Pakistan, Russia, Italy, the Netherlands and the United States. It managed to sell 40,000 vehicles in global markets through its 24 overseas plants and 124 sales branches in 37 countries and regions by the end of last year.

Cai Jianjun, vice-president of BAIC, says as is the case in most African countries, where new cars are beyond the reach of most people, used vehicles command a large share of the market, with the proportion being 70 percent in most countries in sub-Saharan Africa such as South Africa, Ghana, Ethiopia, Angola and Kenya.

The disadvantage of such a big used car market is that the brand life of some cars can be as long as 20 years, and anyone with one of the old models can face problems in obtaining spare parts.

"Consumer trends there indicate that buyers go for vehicles they know they can buy spare parts for in the nearest town," Cai says.

Cai says this is a new growth opportunity for BAIC because the company can provide spare parts in sufficient quantities and technical services on time through locally built warehouses, established logistics and service networks.

"The auto market is usually seen as a barometer of the macroeconomy, since it reflects the scale of GDP, consumption power, regional trade and the developing level of industrialization, as well as infrastructure development," says Zhao Ying, a researcher at the Chinese Academy of Social Sciences' Institute of Industrial Economics.

zhongnan@chinadaily.com.cn

(China Daily Africa Weekly 05/27/2016 page30)