Paran Balakrishnan: On the fast lane to growth

MY WORD!

Until a few years ago Beijing's roads were ruled by a web of arcane rules that prevented most residents from buying automobiles.

In fact, the Chinese capital still has almost impenetrable rules that keep motorbikes to a minimum. But, as the Chinese government has lifted the restrictions on automobiles it has triggered another extraordinary boom that's having worldwide repercussions.

This week the world's top automakers are blazing into Beijing with scores of new models and billions of dollars in their kitties.

They are driving into town for an event that started modestly in 1990 and which barely made it to the desktop calendars of most global automakers at the time. This year, however, the Beijing AutoChina show has turned into a razzmatazz show that can't be missed by anyone.

Leading the way to the Chinese roadshow is the world's No 1 carmaker GM which flourished its chequebook and announced that it would be spending a humongous $3 billion to boost productions in China and put a slew of new models on the road. The company reckons it will be making 1.3 million cars in the country by 2007.

"For now, the world's largest automaker has served notice that it intends to remain No 1 by going hard after a huge market," said the Detroit Free Press exultantly in an editorial. What's good for GM is good for Detroit, which is, of course, the auto capital of the United States.

GM's rivals aren't about to pull over and let it rule China's roads. Volkswagen, the front-runner on Chinese roads, last year drew up a blueprint to spend over $7.4 billion in the country. This week it announced that it will spend $636 million on two engine factories.

Volkswagen is the Maruti-Suzuki of Chinese roads with about 30 per cent of the market (that doesn't quite match Maruti's dominance) and it sold about 800,000 cars in 2003. It's now thinking about introducing its Skoda models in the country. Similarly, Ford on a more modest scale has just introduced a new Ford Focus, which it says is tailored for Chinese roads.

It doesn't need a soothsayer to understand why the world's auto giants are besides themselves with excitement about the Chinese market. Car sales in the People's Republic soared by 44 per cent last year to about 2 million. Similarly, auto sales climbed by 29 per cent to over 4 million (that includes other vehicles).

Most car companies say that it will climb to 10 million by 2010. The country has already overtaken Germany as the world's third-largest vehicle market and it should overtake Japan in 2006 or 2007. That leaves only the United States and according to most analysts it will move into first position by 2025.

How important is China for auto companies? Volkswagen, for instance, has revenues of about $15 billion in Asia-Pacific and half of that comes from China.

Meanwhile, the Chinese aren't about to leave the roads entirely clear for foreign carmakers. As the market has grown so have local manufacturers like Geely and Chery which have indigenous parts and which are selling at much lower prices. Now they are talking about taking the two brands to foreign roads.

China isn't the only Asian country where automakers are on a roll. In Thailand where the roads are dominated by Japanese auto companies, growth is also above 30 per cent and everyone reckons it will stay in the fast lane for some time to come.

In India too the auto industry is racing along at over 30 per cent growth rates even if we aren't anywhere near the Chinese.

The effect of Asian growth is being felt in carmaking countries like Japan and Korea. Japanese automakers are moving ahead at a scorching speed in Thailand. And Korea's auto giants like Hyundai have come out of the red and are now comfortably in the black.

Contrast this with Europe and the United States where auto sales are crawling along the highway. It's not surprising that the world's automakers are heading for the open highways of Asia.