Auto Industry Makes Great Strides In Northeast China

The booming growth of auto manufacturing in China¡¦s coastal regions has been receiving a great deal of attention recently' but in Northeast China the ¡§patriarchs¡¨ of the industry are not doing badly either. The China FAW Group Corp.' which is known as the ¡§eldest child¡¨ of automobile manufacturing in the country' is also busily expanding its production base; and the Liaoning SG Automotive Group Co.' a purely private concern' is also working hard to catch up. In addition' the Jinbei Auto Works under the FAW Group' which makes Sea Lion-brand small and medium-sized buses' is also participating in the regeneration of this mature industrial area and is looking for investors to provide new capital.

The northeastern auto industry has never before experienced such intense competition as today. In the past' purchasers of locally made autos had no choice' but now automobiles from the southeastern coastal areas have entered the competition; in addition' with the spectacular improvement of the economy following reform' the native auto industry has had no choice but to bring in foreign technology and cooperate with major manufacturers. It has also expanded its production base' crossing over the Bohai to set up factories in Tianjing' Beijing' and Hubei Province. FAW is preparing a new base for the production of high-end cars' but is unwilling to reveal whether it will do so in cooperation with Mercedes-Benz or BMW. Liaoning SG has announced that it will produce a mid-priced SUV to sell at under 80'000 renminbi.



A ¡§Warring States Period¡¨ for automobiles in Northeast China has already arrived. In terms of brand' FAW produces the ¡§national treasure¡¨ Red Flag and Xiali sedans' as well as the low-priced Weizi and Fortune Messenger cars. It is also involved in joint ventures that turn out various VW models; the Audi A6 and A4; the Toyota VIOS and RUV; and Mazda sedans. FAW also produces the Liberation-brand of trucks' as well as Jiabao-brand vans' East Wind-brand sedans' and three types of buses. The SG Group concentrates on the production of Yellow Sea-brand buses' which are used as public buses in Beijing and other major cities. One of SG¡¦s main areas of business is the production of auto parts; another is trade in automobiles. The company¡¦s product line includes more than 100 types of affirmed-quality axle products in seven major categories' including axles for offroad vehicles' light buses' light trucks' sedans' minicars' and heavy vehicles.

The Northeast China auto industry is concentrated in Jilin Province. There is also an auto company in Heilongjiang Province that produces JT662D' LT97Y10' and HKC338T buses at a volume of only 4'000 units per year. The company has debts of US$600'000 and' with operations difficult' plans to find a buyer or a new cooperative partner. The SG base is in Liaoning Province' which is also home to a FAW bus factory. The Harbin Airplane firm' located in Heilongjiang Province' produces helicopters as well as the Songhua River line of minicars with an annual capacity of 200'000 units. Heilongjiang has a well-developed auto parts industry' with more than 80 manufacturers turning out parts for light and medium vehicles. The volume of auto sales in Harbin reached 230'000 units in 2003. Harbin is the largest city in mainland China under provincial administration; located at the center of Northeast Asia' it has a richly Russian appearance.

The year 2004 is proving to be the time of greatest challenge for China¡¦s auto industry. WTO membership has caused the country to open up its auto market; the auto manufacturers in the northeast are full of confidence' however' with no sign at all of worry. An FAW official said that his company provided a diversified range of products and could respond flexibly to market demand' and SG feels that it is the equal of any company in the price war. Its offroad vehicle features smart styling and a lot of horsepower' while its price is less than half that of a comparable European or Japanese vehicle. The company is eager to expand into Taiwan.

The manufacturers here are practically unanimous in saying that it is not only difficult for foreign companies to compete with their advantages' but that even the manufacturers in China¡¦s southeastern coastal areas are weak in comparison. Manpower costs average 600 to 1'000 reminbi per month' while quality is higher than that of other areas because of the several hundred universities' colleges' and senior high schools in the northeast. This is especially significant since the three northeastern provinces have a large market with a population of 100 million and an abundant supply of parts; and WTO entry has not slowed down major international auto makers' who are rushing to invest in the northeast. Even factories in the coastal areas are moving there. Companies setting up factories and investing capital in the northeast include BMW' Toyota' Hino' GM' and Michelin (for tires) in Liaoning; in Jilin' the government of the capital city' Changchun' has set up an auto unit' chaired by the chairman of the city¡¦s economic committee' to help auto makers resolve problems. It has been reported that Taiwan¡¦s Yulon Motor will establish an interior auto mirror plant there' and there are 34 other Taiwan-invested factories as well' including 22 cooperative ventures and one sole proprietorship. Notes the Auto Office' "We will repay them through domestic demand."

Domestic demand is a powerful magnet that attracts every manufacturer. The objective of FAW's efforts' for example' is a car for every mainland Chinese family. The possibility of this is proven by the speed at which everybody there has acquired a mobile phone. FAW started with its own 240'000 employees' targeting 50'000 of them for sales promotion; and by the end of 2003' 8'600 of them were already driving their own cars. The company forecasts that China's total annual demand for automobiles will soar from 4.4 million units today to 10 million units in 2020. It is a fact that the auto industry in Northeast China has been growing at amazing speed; in the 20 years since SG was established' it has experienced a more than 20'000-fold growth. This would hardly have been possible had the market not demanded it. One reason for this extraordinary performance is that average incomes in this region are higher than elsewhere; in Dandong City on the banks of the Yalu River' for example' the average income is US$2'900 per year. The three northeastern provinces contain just 8.56% of China's total population but account for more than 20% of its auto sales; this is a golden market for automobiles' and it is no wonder that manufacturers are rushing in to establish a foothold there.

The northeast is proud of its software and environmental construction' but economic development has also given rise to constantly expanding chaotic conditions. Automobiles must have a comprehensive network of roads' but this network is not yet sufficiently complete and drivers frequently have to take long and tortuous routes. The quality of freeways is not up to par' and trunk highways are sometimes broken off in many places' resulting in single-lane or one-way traffic. The overloading of trucks is ubiquitous' and the accidents they cause frequently result in major tie-ups. Transportation facilities are poor' traffic lights are lacking' direction signs are unclear' and with no police directing traffic at intersections during rush hours' traffic cannot be smoothly dispersed. The northeast is the place where the first China-made automobile was produced in 1956; that car was named the "Liberation" by Mao Zedong' and it enabled him to refuse the limousine that Richard Nixon wanted to present to him in 1960. With such policy support' this "sacred land" of auto manufacturing enjoys strong advantages; if the Chinese government and society lack knowledge of the auto culture' however' what the northeast may end up with is a calamitous disorder.