Made-in-China cars steer course abroad

Over the coming weeks, a few Volvo cars will begin a historic journey from southwestern China to the US. The Swedish company's S60L sedans will be transported by truck to Shanghai's port, loaded onto car carriers for shipment across the Pacific, and finally rolled off in Los Angeles.

Manufactured at Volvo's new plant in Chengdu, the first made-in-China passenger cars purpose-built for export to the US are a reminder of how far the country - like Japan and South Korea before it - has come in global manufacturing terms.

China has evolved from a supplier of low-cost, labour-intensive products to an exporter of what Ralf Speth, Jaguar Land Rover chief executive, calls "the most complex consumer product on earth".

"China will probably follow the path we have seen with Japan and Korea but will do it faster," Hakan Samuelsson, Volvo chief executive, said at this week's Auto Shanghai, one of China's two annual premier car shows. "I would say 2020 is realistic to see Chinese cars on the global market."

Unlike Volvo, a unit of Chinese carmaker Geely, most multinational car executives are reluctant to talk about China as a possible future export platform for their companies.

That is in part because they do not want to compete against sister units overseas and would also have to share their export earnings with their Chinese joint venture partners. Chinese government rules cap foreign ownership of automotive factories at 50 per cent.

But with huge capacity investments in China coming on line just as annual economic growth falls to a "new normal" of below 7 per cent, the question about whether that capacity should be used for exports is not going away.

Jacques Daniel, head of Renault's China business, says his overseas colleagues raise the export issue frequently. "The question is often asked by our colleagues at Renault because they are afraid are we going to export," Mr Daniel says. "But with such a big market here, all our energy should be focused on China."

Renault is a latecomer to China, the world's largest car market with more than 20m units sold last year. The French company will not open its first factory in the country until early 2016. The joint venture with Dongfeng Motor in Wuhan will have an initial capacity of just 150,000 units.

At the other end of the spectrum GM and Volkswagen, the top two automakers in China, will have a combined manufacturing capacity of almost 10m units in their most important market by 2018. GM is in the midst of a five-year, $14bn China investment drive that will increase capacity 25 per cent this year alone.

Both companies believe that even such huge capacity increases can be absorbed by China alone. "We want to build where we sell," Mary Barr, GM chief executive, said at an Auto Shanghai briefing. "It's still important to make sure we have the capacity for the domestic market."<

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"At the moment we've seen most of the capacity only supporting the local market because the local market has been running fast," adds BMW director Ian Robertson, noting that exporting from China is "something we haven't taken a decision on yet".

Volvo's Mr Samuelsson, meanwhile, says that although his company is proud to play a "pioneering" role in China's emergence as an automotive exporter, he emphasises that the exports of Chengdu-made vehicles to the US is a "niche" effort.

This year Volvo will ship no more than 2,000 S60L sedans to the US, with that number rising to about 5,000 over the next few years. The majority of Volvo cars sold in America will continue to be exported from its plants in Sweden and Belgium, or will be built by at a new factory it intends to open in the US.

The S60L was originally developed with a longer wheelbase, providing more back-seat legroom for a generation of wealthy Chinese car buyers who preferred to be chauffeured. Volvo believes the roomier vehicle will also appeal to American families.

As long as China's domestic market grows fast enough to absorb multinational car companies' capacity expansions, the real test of the country's automotive export prowess will be international acceptance of Chinese brands in developed markets such as Europe and the US.

So far, even well-regarded Chinese companies such as SUV-maker Great Wall Motor have exported primarily to developing - and often volatile - markets such as Iran, Russia and Ukraine.

But that is changing. Clemens Wasner at consultancy EFS points to the award-winning CS75 SUV developed by Chang'an Auto, which is also Ford's primary China joint venture partner. "Design-wise it's already done very well on the likeability scale," Mr Wasner says. "With a few tweaks you could sell this, let's say, on the periphery of the EU."

"The local brands will become more international," agrees BMW's Mr Robertson. "And over the longer term the China car industry will become part of a more global supply as well."

GM uses China as SE Asia foothold

While GM says it has too much domestic demand to handle in China to contemplate exporting from the country, it is using one of its Chinese joint ventures to establish a beachhead in Southeast Asia - a region traditionally dominated by Japanese automakers, writes Tom Mitchell in Shanghai.

The US carmaker confirmed in February that SAIC-GM-Wuling (SGMW), a joint venture with Shanghai's SAIC Motor and Wuling Motor, would build a factory in Indonesia to produce Wuling-brand vehicles for sale across Southeast Asia.

The Wuling brand has been particularly successful in relatively less wealthy, "lower tier" Chinese cities. "When you look at Indonesia and you look at SGMW's product line, there's a good match," Mary Barra, GM chief executive, said at Auto Shanghai.

"Indonesia makes perfect sense because Wuling really has a competitive product in the low-cost segment," says Clemens Wasner, a Tokyo-based automotive analyst with EFS. "It also shows that without a strong partner with expertise in low-cost vehicles, it's almost impossible for a non-Japanese foreigner to penetrate Southeast Asia."

GM earlier this year pulled the plug on its sole Indonesian vehicle factory after failing to gain ground on Japanese rivals.

When SGMW does begin manufacturing in Indonesia, it is likely to encounter competition from another Chinese rival. Dongfeng Motor, based in Wuhan, last year paid €800m for a 14 per cent stake in France's Peugeot, with which it already had a successful China joint venture.

One of the partnership's stated goals is to pursue export opportunities in Southeast Asia - and possibly further afield as well. "The reason Dongfeng invested in Peugeot was to get China as an export base," says Janet Lewis at Macquarie Securities.

"You could also in future see cars designed for the China market exported as they won't be made elsewhere," Ms Lewis adds, citing the potential popularity of BMW's China-made long wheel-base sedans in markets such as the Middle East.

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