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Last Updated: Sunday, 25 March 2007, 15:49 GMT 16:49 UK
China car firms gear up for booming sales
By Quentin Sommerville
Shanghai correspondent, BBC News

Shanghai street in 1991
Streets filled with bicycles are being replaced.....

Shanghai's urban planning museum has a useful exhibit - a series of photographs taken from the same spot, now, and 20 years ago.

The transformation is startling.

Where once there were muddy lanes, now concrete highways soar.

In two short decades, roads that were crammed with bicycles have given way to highways choked with cars.

China's landscape is being remodelled by the car.

Ten years ago there were almost no privately owned cars in China.

By the end of 2005 there were almost 24 million.

China now has more car brands than the United States, and the desire to move from two wheels to four shows no sign of disappearing.

The Chinese car market has just overtaken Japan and is now the second largest market in the world, after the United States.

"There will be another 20-25% growth in 2007," says Yale Zhang, an auto analyst in Shanghai.

"There were nearly seven million vehicles sold in China 2006, Japan made around 10 million, but most of those were sold for export, not in the domestic market."

New roads

In China, a growing middle-class is fuelling demand.

Shanghai street in 2007
.... with fuming congestion

Most pay for their new cars with cash, but an increasing number are turning to credit.

It is expected that by 2015, around half of all new cars will be paid for by financing.

And thanks to a massive road building programme there is now more open road for Chinese motorists.

Before the country's market reforms began in the late-1980s it had almost no national road network.

It now has almost 50,000 kilometres and a further 25,000 kilometres will be added over the next five years.

New models

China's domestic car producers are beginning to rise to the challenge.

In terms of quality, I don't think we're so far behind as some of our competitors would have it,
Professor Hans-Ulrich Sachs, Brilliance Jinbei Automobile importer

So far, most of the models produced have come from joint ventures with foreign manufacturers like General Motors and Volkswagen.

But China's own brands - like Anhui-based Geely and Zhejiang-based Chery - are gaining ground.

Between them, they made up a quarter of all cars sold in 2006.

Shanghai Automotive has produced its first own branded car, using designs from the former British auto-maker MG Rover.

The first cars, called Roewe, are expected to go on sale in March.

Selling for about $15,000, they will trade heavily on the car's British heritage.

At the same time, another rival state-owned car-maker, Nanjing Automobile, will produce its own version of the Rover 75 sedan model, called the MG7.

The firm will also build an MGTF roadster.

On the outskirts of the city a massive new car plant is being constructed.

In the mornings young workers learn about British motor heritage, in mind-numbing detail.

In the afternoon, they get to grips with factory equipment that has been shipped from Rover's former Longbridge plant.

Basic cars

With prices starting as low as $6,000, a growing number of Chinese motorists are buying Chinese brands.

Office workers are keen to get their hands on their first car.

The nippy Chery QQ is popular choice, and it comes in a range of bright neon colours.

There will soon be more cars in India and China than the US
There will soon be more cars in India and China than the US

Labour is cheap, so the cars can be produced cheaply.

Car makers here compete on price and the quality of their final product often suffers as a result.

Just like early Japanese and Korean manufacturers, Chinese companies have been focusing on the low end of the market to begin with, where profit margins are smaller, Mr Zhang says.

"Only when they have better brands, established distribution networks and new research and development centres will they grow to the mid and luxury segments," he says.

Vast home market

China is a huge market, which explains why domestic producers are preparing to serve their home market first before targeting global markets in earnest.

China car market
China is now exporting cars to the West

Nanjing Automobile and Geely say they will build models for the foreign markets, but for now only a tiny number of Chinese-made cars are sold overseas.

But in 14 years time it is expected that there will be a 140 million cars on Chinese roads, more than the United States has today.

China's auto-makers believe they have still got plenty of room to grow at home.


SEE ALSO
Globalising the car industry
28 Feb 07 |  Business
China's new economic frontier
05 Feb 07 |  Business

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