Two Major Groups Dominate Northeast China's Auto Industry

Northeastern China is the cradle of that country's auto industry. The first car made in China was "born" there on July 13' 1956. This was actually a handcrafted work; five or six central government leaders competed for the honor of naming it' but Mao Zedong in the end trumped all and dubbed it the "Liberation."

This is a story that must be told by starting in 1949' when China's new Communist government was established and Mao Zedong went to the Soviet Union on an inspection trip. During a visit to a Stalin-initiated auto factory Mao realized the importance of the auto industry' and with technical help from the Soviet Union the China First Auto Works was born in Changchun' Liaoning Province' in 1953. In 2003 it was transformed into China FAW Group Corp.' and has an annual production of 900'000 units!Xone-fourth of the country's total production--with plants scattered throughout 19 cities in 13 provinces and 1'080 sales outlets in Europe and Asia.

In recalling the past' China FAW executive Wo Zhong-sheng speaks with great relish. He says that the first "Liberation" vehicle was only a small truck' but that it created a huge sensation when it was displayed in front of the Great Hall of the People at Tiananmen in Beijing. Everybody was proud that China itself could build an automobile' and this quickly aroused a "support China First Auto Works" movement with school children contributing their families' metal objects to serve as raw material for making autos. The amount of waste metal that reached Changchun was enough to fill more than 200 railroad cars. The first hand-made sedan was not completed until May 12' 1958' marking successful trial production. It was shipped to Huairentang at Zhongnanhai in Beijing' and Mao Zedong said' "We're riding in a little car that we made ourselves!" This shows how happy he was at that time! The first "Red Flag" brand sedan' sporting a V8 engine' rolled off the lines on Aug. 1' 1958.



Red Flag sedans now come in several high-end models: the Flagship' Century' and Celebrity. The authorities will not confirm it' but it is reported that in the early days the Red Flags were made without brakes. When a traffic policeman saw one he would just salute and let it pass' because the cars were always assigned to top-level leaders and nobody would dare to stop one. Deng Xiaoping reviewed troops from a Red Flag on Oct. 1' 1984; so did Jiang Zemin' on Oct. 1' 1999.

Cooperating With Foreign Automakers


Among the major events in the company's history was its cooperation with foreign manufacturers following economic reform and liberalization. The first target of cooperation was VW of Germany' and a production line with a capacity of 30'000 Audi vehicles a year was brought in. The first automobiles rolled off that line the following year' and the year after that a production agreement was signed with VW for a 150'000-vehicle joint venture. Cooperation with other foreign partners include a 1992 joint venture for the establishment of a Liberation-brand assembly plant in Tanzania' and a 2002 cooperative agreement with Honda of Japan. That was also the year when the 500'000th automobile rolled out of FAW's factory; that record was doubled in only two years' and the one millionth auto was produced in 2004. Company officials regret' however' that FAW cannot yet be admitted to the "World Club'" which requires an annual auto production of four to six million units.

The FAW Group has its headquarters in Changchun' Jilin Province' consisting of several subsidiaries for the production of sedans' buses' and auto parts' in addition to a technological center. The main products of these companies encompass Red Flag sedans; Mazda 6 sedans; VW sedans and Golfs; Audi A4 and A6 sedans; Long March and Taihu buses; and Liberation trucks as well as their major parts and components. The group has established a factory in Harbin for the production of light trucks' and another plant in Jilin City for the production of mini-trucks. In addition' there is a heavy truck plant in Siping City' a factory for auto sheet metal and springs in Shenyang' plants to produce diesel engines for trucks in Dalian' Liaoning Province and Wuxi' Jiangsu Province' a plant for trucks and special-use vehicles at Qingdao City' another for buses at Wuxi' and one for making Hainan sedans at Hainan City in Guangdong Province.



In addition' the group produces automobiles through many joint-venture holdings. At the same time' the group has established auto-marketing companies in Beijing and Shenzhen cities to handle sales and after-sales services. In 2003 the group received an original equipment manufacturer (OEM) order for engine parts from Ford of the U.S.' boosting its international competitiveness in the supply of auto parts.

The ideal of this large auto group' which chalks up sales of US$7.5 billion annually' is to be "forever First." Its aim is to bring an automobile to every household' and for FAW to be first in production and sales growth every year. In fact' FAW's every move has the significance of a benchmark' and its every action has a profound impact on China's auto industry.


SG Automative: Leader in Axles


The Liaoning SG Automotive Group Co. is China's biggest manufacturer of automotive axles. When the enterprise was established by seven skilled workers 20 years ago' however' its present success would have seemed like an "impossible dream."

One evening this March' SG chairman Li Jindian stepped onto the podium in the Beijing University library and gave a dignified talk to the audience about his experiences in establishing the company. At the end of 1984 a tide of economic liberalization and reform arose in China and the government began allowing private individuals to establish businesses. At the time Li was working in a state-run auto accessory factory' and one day happened to strike up a conversation with his colleagues about these so-called "individual businesses." They all felt that a single person operating an "individual business" would have limited strength' but that 10 "individual businesses" working together would be able to operate a small factory. Ten colleagues managed to raise 70'000 renminbi (RMB)' and used it to set up the Dandong City SG Automotive Works.

After 20 years of effort SG has acquired the state-run Huanghai Auto Group' which had been a leading bus manufacturer. Today' SG itself is the manufacturer of Huanghai-brand buses' which are used for public transportation in major Chinese cities. And this is not the company's greatest success; an even more eye-catching achievement is its total assets of RMB2.09 billion!Xa more than 20'000-fold increase over its founding capital of RMB70'000.

The Liaoning SG Automotive Group Co. was established in September 2003. This represented the third change of name since the founding of SG; the previous name change had come in 1992' when the enterprise was reorganized as the first private company limited by shares in Liaoning Province. Its shares were listed on the Shanghai stock exchange on Dec. 26' 2000' and in 2003 it merged with the Huanghai Group and was reorganized in its present form. This further consolidated its position as the second largest auto group in Liaoning.

The successful acquisition of Huanghai was a source of great satisfaction for SG' and chairman Li was invited to speak at academic research institutions and media groups all over the country. In the progress of privatizing state-run enterprises in China' the reorganization of Huanghai into a private company has proven a model of success. Before the 1990s Huanghai' also located in Liaoning' was in the vanguard of China's bus industry. When economic reform and liberalization were inaugurated in the middle 1990s' the state-enterprise mechanism hampered the pace of reform and the company's market share contracted' falling to 5% in 2002. Its ranking in the industry also slipped' plunging it to seventh or eighth place. Its debts mounted by the day' and its production operations became increasingly difficult. In August that year' under prompting from Communist Party leaders in Liaoning' Huanghai and SG carried out a restructuring of assets' and with Huanghai's technology and its brands added to SG's operating system and capital' operations were started anew. But a problem remained--after reorganization the same people were in place. Outsiders suspected that the company was avoiding its debts' banks stopped extending loans' and in April 2003 the company's production lines were finally brought to a halt for two months. With its experience of more than a 20'000-fold growth in 20 years' SG first brought down Huanghai's lofty image as a long-established' prestigious' and powerful state-run enterprise' and then used the operating methods of a private corporation to bring the company to life again. In the first year it turned out 5'375 vehicles' an increase of 45% over 2002; this year' its growth target is 60% to 80%.

SG's base in Liaoning's Dandong City includes Dandong Huanghai Automobile' Dandong SCT Special Purpose Vehicle' Dandong SG Axle' and Dandong SG Suspension. The group also operates an axle company in Zhucheng' Shandong Province; a heavy-vehicle axle company in Futian' Ankai' in Anhui Province; an axle plant in Fengcheng' Liaoning Province; an automotive-brake company in Henan Province; and a gear company in Rongcheng' Shandong Province. In addition' SG has set up technology centers in Dandong' Beijing' and Shenyang. It also has a branch in the U.S. city of Detroit and an office in Seoul' Korea. Its assets amount to 2.09 billion RMB and its work force totals 5'455 persons' of which 919 are technical personnel. The company facilities occupy a total area of 1.2 million square meters.

The company's operations are divided into four main categories: complete vehicle production' axle production' parts and components production' and trade and maintenance. There are more than 20 lines for the production of buses and special-purpose vehicles' with an annual capacity of 6'000 buses' 20'000 SUVs' and 6'000 bus chassis. It also turns out 280'000 axles' 1.33 million spindles' 1.33 million sets of brakes' and 85'000 sets of gears annually. Its operating revenues amount to 2.2 billion RMB a year.

SG is mainland China's largest manufacturer of axles for light vehicles' and one of the three top makers of brakes there. Its developmental strategy is to position itself as an axle maker (the company proclaims itself as the "king of axles") and to develop complete vehicle production. It has set for itself a three-step development target: starting from its 2003 revenues of 2.2 billion RMB' jumping to 5.0 billion in sales in 2005 and topping 10 billion in 2008. In the face of the opening of China's automobile market in 2005 as a consequence of membership in the WTO' will SG be able to achieve these "steps"? Chairman Li is confident. China's auto market is a diversified one' he says' and the country's auto companies will have plenty of room to develop if only they find the right way to differentiate themselves from the others. (This report is based on an on-site visit by the author' who is publisher of China Economic News Service)