Cars

Global automakers eye massive market

By Li Fangfang (China Daily)
Updated: 2010-08-18 09:21

Employees at the Beijing Benz Automotive Co plant in Beijing. [Nelson Ching / Bloomberg]

BEIJING - China will no doubt remain the favorite investment destination for global automakers in the future, due to the local market size and potential, as well the continuous upgrading of the industry and investment environment, said analysts and company executives.

"We are firm believers in China's investment environment and the huge potential it brings, as for years China has been providing preferential policies and expanded domestic demand to attract foreign investment," said Ulrich Walker, chairman and CEO of Daimler Northeast Asia.

"Furthermore, during the global financial challenges, China continued to offer a beacon of light to others around the world. As such, we hold strong confidence that China will continue to present a dynamic investment environment and a fast-growing marketplace that is favorable for foreign direct investment," said Walker.

Last year, the world automobile industry shrank considerably as demand slumped due to the financial crisis.

However, helped by the Chinese government's series of successful incentive measures, China's domestic vehicle market last year overtook the United States for the first time to become the world's biggest auto market.

Automobile sales in China are expected to maintain a year-on-year growth rate of 20 percent for the next five years, according to a recent survey conducted by consulting firm AlixPartners.

"China is the world's most promising auto market and foreign carmakers' success in China is vital to their overall global performance, so who is willing to leave such a huge market?" asked Zhong Shi, an independent auto analyst based in Beijing.

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According to Walker, Daimler has continued to invest heavily in China, as demonstrated by its local joint ventures and partnerships, including Beijing Benz Automotive Co Ltd in manufacturing passenger cars, with Fujian Daimler Automotive Ltd to produce vans, with Foton-Daimler for trucks, and BYD-Daimler on R&D for new-energy vehicles.

"With such extensive investments, Daimler has now expanded to all segments of the automotive industry in China. Looking forward, we are dedicated to further strengthening these investments in order to reinforce our competitive edge in this market, and again we feel proud to be able to sustainably develop together with a market that is as rich, dynamic, and rapidly growing as China," said Walker.

He also told China Daily that the German automaker and its partners have decided to invest 3 billion euros in China in the next years."

"There is no doubt that all of the automakers will continue to invest," said Thomas Schiller, managing director of consulting firm Arthur D. Little in China.

"The country is for many OEMs (original equipment manufacturers) already the most promising or most important market. And even the competition is fierce, the size and growth of the market requires investments to gain more competitiveness and not only to increase production."

Last year, the Chinese government made extensive efforts to encourage mergers and acquisitions in the domestic automobile industry, in a bid to integrate the industry and improve local automakers' competitiveness.

"We are very impressed to see a growing number of local companies becoming more globalized and much more competitive. And together with them, Daimler is extremely pleased to also take an active part in the fast development of the Chinese automotive industry," said Walker.

However, to maintain their leading position ahead of domestic rivals, Schiller suggested foreign OEMs invest in product development to enrich their portfolio, create lower-priced cars and compete directly with Chinese OEMs.

He also advised foreign automakers to move more of their investments to less-developed parts of the country.

"Many OEMs are only strong in one area, for example dominant production and location in the south, but weak in the north," said Schiller.

"All multinational and domestic players should allocate plants to underdeveloped regional markets," he added.

Global automakers are also facing challenges to keep investment balanced with market conditions and development, according to Schiller.

"There will be a consolidation phase sooner and nobody knows when and how much the next boom will start. All OEMs should to be prepared and invest heavily, but cannot allow low utilization of their capacity," said Schiller.