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Chinese Carmaker Sets up JV to Expand into SE Asia

SAIC Motor to produce SAIC MG cars with Thailand-based JV to target ASEAN

2013/04/08 | By Michelle Hsu

SAIC Motor, a carmaker in China, and Thailand's CP Group announced last December that they would set up a joint venture company in Thailand, marking the first among Chinese carmakers to expand southward as they used to focus on overseas markets such as Africa, the Middle East, and South America.

The joint venture will produce the SAIC MG series which are not only for the Thai market, but all the ASEAN (Association of Southeast Asian Nations), where member countries qualify for preferential duties on trading of automobiles and auto parts.

Following Geely and Chery—the two frontrunners of China's carmakers in expanding abroad, SAIC's move is another indication that Chinese brands are broadening their marketing ambitions.

SAIC Motor is extending production lines into the ASEAN.
SAIC Motor is extending production lines into the ASEAN.

The two sides will initially invest 1.8 billion RMB in the joint venture through its overseas subsidiaries SIAC UK and SAIC Hongkong, with SAIC holding 51% and the balance by its Thai partner, enabling SAIC's majority stake to control the management. In fact, SIAC will offer technology and trademark licensing to permit the Thailand-based joint venture to produce and sell SAIC MG cars.

A major, well-known multinational corporation in Thailand, CP Group has wide ranging influences, sales network and long-term experience in Sino-Thai cooperation and joint ventures.

SAIC is a listed automaker in China and publicized the 8th time among the 500 largest companies globally, at 130th place. The joint venture will introduce competitive automotive products and low-cost operational model with lean investment and support from ASEAN resources, to achieve sales and service network quickly.

According to the SAIC, the joint venture in Thailand plans to launch products in 2014, gradually achieving production and sales capacity of 50,000 units yearly. Then the joint venture will leverage advantageous duty policies in ASEAN to introduce locally-suitable products and those for right-hand-drive countries with eye on annual capacity of 200,000 units.

Thailand is already an overseas production center of Japanese carmakers.
Thailand is already an overseas production center of Japanese carmakers.

Thai Incentives
The intra-ASEAN preferential taxes is reportedly the major impetus behind China's carmakers to boost trade with ASEAN members, with the move also fueled by Abe's policy to devalue the Japanese yen, which pressures price-wise the main export industries of Taiwan and South Korea involving ITC, auto parts and so on.

In contrast, the Thai automobile industry benefits from lower import costs of parts brought about by the rising baht-to-yen ratio.

With bold claims of becoming the “Detroit of Asia,” Thailand is the overseas production center for Japanese carmakers like Toyota and Nissan. Official figures indicate that 54% of vehicle spare parts purchased in Thailand in 2012 came from Japan.

In Bangkok, Nalin Chutchotitham, an analyst with Kasikornbank, said that the large devaluation of the Japanese yen is perfectly timed to benefit the local auto sector, with cheaper imported auto parts offsetting higher wages.

As Thailand's economy has gradually recovered from the worst flooding in nearly 70 years, the Thai baht has surged 2.8% against the U.S. dollar in 2012, or roughly 9.4% against the Japanese yen during the first two months of this year. Kasikornbank predicts that with the inflow of foreign capital amid the improving Thai economy, the Thai baht can be expected to continue rising this year.

Jun Trinidad, an economist with Citigroup interviewed in Manila in January, said that with the yen sliding, the market cannot help but think that the New Taiwan dollar and South Korean won will soon also be devalued. Not the Thai baht however for Japanese car plants are located in Thailand.

Booming ASEAN Economy
Various signs show that the ASEAN economy may continue to perform relatively better than other areas in the world this year, thanks to booming investments by either nationals or foreigners, which also attract investments from China's carmakers.

Besides Thailand, other major ASEAN countries all recorded encouraging economic growths: in 2012, the Philippines was the best-performer with annual growth of 6.6% to surpass the 5-6% target set by the government, with such growth primarily driven by consumption and private investments.

Indonesia continues to see relatively high birth rate, with population expected to exceed 280 million by 2030 at annual increase of around 2.5 million people. The expanding population satisfies labor demand to back industrial growth of the country, as well as breed a growing middle class of consumers. Amid Asian countries in 2012, Indonesia ranked third in economic growth, only trailing China and the Philippines.

Vietnam is another major ASEAN country with population expected to exceed 100 million by 2020. Besides robust consumption power, low-cost labor and stable political environment are two major factors boosting the country's economy, which recorded annual growth of 4.77% for 2012.

The International Monetary Fund (IMF) estimates that the major five ASEAN countries—Indonesia, Thailand, the Philippines, Malaysia, and Vietnam—will record a combined GDP of roughly US$2.436 trillion by 2014, to surpass those of the four little Asian dragons—Taiwan, South Korea, Singapore, and Hong Kong. Ten years ago, the combined GDP of these five ASEAN countries was only a half of those of the four dragons.