Chery on top
Chinadaily  08/28/2006  

When talking about the automotive industry in the US, one name comes to mind: Detroit.

Famous around the world, Detroit is home to auto conglomerates General Motors Co, Ford Motor Co and Chrysler.

More than a quarter of automobiles made in the US come from Detriot. About 90 per cent of the 4.4 million-population in Detroit live off the automotive industry.

In China, despite a quickly developing auto industry, there is no Detroit. At present, 27 provinces and municipal cities are manufacturing automobiles. Beijing, Shanghai, East China's Jiangsu Province, Zhejiang Province, Anhui Province, Central China's Hubei Province and Northeast China's Jilin Province all predict local auto production volumes exceeding 1 million units by 2010.

Despite this disparity of locales, one province does aspire to be China's auto capital: Anhui.

"We are confident we can be China's independent auto base," says Yang Zhenchao, director of the Economic and Trade Commission of Anhui Province.

Since 2000, the government has made the auto industry its No 1 priority, and automotive businesses have become Anhui's backbone.

Proud achievements

Analysts say in 2010, domestic auto demand will achieve 10 million units, and that competition will transfer from enterprises to regions.

Yang believes Anhui, more than any other location, is set to ride the boom.

During the last five years, Anhui Province invested 19 billion yuan (US$2.4 billion) in the automotive industry, 533 per cent up from the previous five years. Its annual auto production capacity increased from 200,000 units in 2000 to 650,000 units in 2005. Sales volume mounted from 107,000 units to 405,000 units, with an average annual growth rate of 30.18 per cent, 10 per cent higher than the nation's average.

With the development of its auto manufacturers, Anhui's auto spare parts industry has also advanced rapidly.

According to the government, the annual sales revenue of spare parts rose from less than 3 billion yuan (US$375 million) in 2000 to 12 billion yuan (US$1.5 billion) last year. The growth rate was 30 per cent.

In the last three years, the development of spare parts has surpassed the auto industry.

Anhui's Wuhu, home of China's leading automaker Chery Automobile Co Ltd, has attracted 210 auto spare parts manufacturers during the past five years, with investment of 5 billion yuan (US$625 million).

In Anhui's Hefei, where Anhui Jianghuai Automobile Co Ltd (JAC) is located, more than 70 related parts providers have settled in the industrial park. The government predicts in 2010 that figure will reach 200.

While strengthening its position in the domestic market, Anhui is keeping its eyes on the overseas market.

Anhui's idol Chery has been exporting its sedan for years. Last year, it sold 17,400 sedans abroad, accounting for more than 50 per cent of the nation's total volume.

Moreover, Chery has become the first among Chinese sedan manufacturers to set up joint ventures overseas in Iran, Malaysia and Egypt.

Total export numbers from the province was 25,000 units in 2005, up from 607 five years ago. Sales revenue for exports climbed to US$140 million from US$5.16 million over the same time period.

"Anhui has become China's key auto export base," says Yang.

Star independent brands

The province has a flock of well known names in the independent auto industry: Chery, JAC, HELI (Anhui Forklift Group Co), Anhui Hualing Automobile Group Co Ltd.

"Chery and JAC contributed 60 per cent of our auto industry," says Yang.

Founded in 1997, the carmaker Chery has surprised the world's auto industry. As the leading independent auto manufacturer in China, Chery has joined the ranks of the top eight sedan-makers in the China market with annual production capacity above 150,000 units, with a slim gap between it and the top three.

Chery's QQ brand made it a legend in China's auto industry, with annual production of 100,000 units last year, making it the fourth highest on the list of single brand producers.

Li Feng, Chery's vice president and general manager of sales and service company, tells China Business Weekly that Chery had a market share of 8 per cent in the China passenger car market and 25 per cent in the independent brand market by the end of July.

"We hope to own more than 50 per cent of the domestic independent brand market in coming years," Li says.

Chery plunges 10 to 12 per cent of its revenue every year into research and development. "Based on independent development, China's auto enterprises can find a foothold in the world," Li says.

JAC, China's light truck export champion, also takes independent development as its core strategy.

"We are targeting to be a major automaker in China, with a strong competitive edge in the global market," says an official of JAC, who declined to be named. "We must treat independent development as a must-do and first-do."

JAC's MPV (multi-purpose vehicle) Refine, has been keeping a fast production pace from its launch in 2002. With market share of more than 20 per cent, Refine has been a flagship product, ranking first among the big-sized MPV market.

Five supporting strategies

Despite the success of these local companies, Anhui has a long way to go before it can claim the title of China's Detriot.

"Although we are marching on an independent development and innovation road with rapid progress, our provincial auto industry still faces a lot of problems, especially in the spare parts industry," Yang says.

According to Yang, to better develop its key industry, the government has five strategies. First, "it is very important to sufficiently and efficiently make use of both domestic and global resources."

Second, the government plans to increase investment in the industry. "We will set up foundations for the auto and spare parts industry," Yang says. "For example, the government will invest 300 to 500 million yuan (US$37.5 to 62.5 million) every year to support independent projects."

Third, the government will continue to encourage and support auto enterprises to go abroad. "Having a strong foothold in the domestic market, our local brands have no reason to stay at home," Yang says.

Fourth, "We encourage State-owned capital to gradually retreat from the stock of auto companies," he says. "Senior management and professional personnel should be the stock bearers."

Lastly, Yang emphasizes that the government will provide services and policy support to the industry's development. "We are making efforts to reduce the cost on land, water, electricity and tax revenue to ease the pressure of our auto makers," he says.