If Chinese Cars Can't Sell at Home...

The Qoros 3 looks quite handsome, but...

...what more abroad? There has been a certain fear factor--especially from less competitive European mass manufacturers alike Citroen/Peugeot, Fiat, Ford, Opel and Renault--that Chinese would be the next to undercut their already-dwindling sales with cheap products after the Japanese and South Koreans of the not-so-distant past. Moreover, it has been widely assumed that they would be at the forefront of China's forthcoming march into PRC-branded goods.

Actually, no. Or at least not yet. In reality, Chinese cars are taking a beating at home from foreign automakers viewed as having more desirable nameplates. The current bone of contention concerns requiring foreign automakers to partner up with Chinese ones in selling vehicles in the PRC. The Chinese automakers are adamant that they will be wiped out if the foreign automakers are allowed to go it alone in China:

Chinese brands will be “killed in the cradle” if the government allows foreign automakers to become more independent from their domestic partners in the world’s biggest car market, the country’s main auto group said.

The China Association of Automobile Manufacturers voiced its warning yesterday as it reported that Chinese brands in January extended market-share losses, falling 4.9 percentage points from a year earlier to 38.4 percent, while foreign companies such as General Motors Co. (GM) benefited from record industry sales. Geely Automobile Holdings Ltd. (175) alone saw deliveries tumble 47 percent.

“Relaxing the current foreign ownership restrictions will wipe out Chinese brands,” the state-based auto association said in a statement in Beijing. “Foreign companies can totally use the competitive advantage of their global supply chains to support a price strategy to kill Chinese brands in the cradle.” 

What's prompted the fear factor?

The comments escalate concerns that the auto group has voiced since a Chinese commerce ministry official said at a forum in October that automakers should prepare for the day when the foreign stake limit is relaxed. Since China opened up its factory floors to foreigners decades ago, companies from GM to Volkswagen AG (VOW) have poured billions of dollars to build cars in the country, as long as they set up joint ventures and kept their ownership capped at 50 percent. 

"Killed in the cradle" is precisely the infant-industry argument.  What's more, even if the 50-50 rule is not followed, Chinese automakers are already feeling the heat as generous subsidies of the past are being rolled back in line with official policy to reduce manufacturing subsidies and ensure that fitter enterprises survive:

Chinese carmaker BYD Co. (1211) may be getting some bad news as it prepares to start selling in the U.S. next year. A planned reduction in government subsidies and a phase-out of interest-rate controls threaten to raise costs for it and thousands of companies across China. 

Chinese manufacturers are going to lose a lot of subsidies they used to have. As labor costs rise, the yuan is also appreciating, while cheap credit and energy is increasingly a thing of the past. Sure it's not easy, but what does it say about Chinese automakers if they have been at the losing end in their home market having all of these advantages in place over the an extended period? After these advantages are removed or greatly reduced by government fiat, what more of a chance do they have in overseas markets?

In automobiles at least, the fears about China wiping everyone else out seem misplaced. Being emotive, big-ticket purchases, automobiles are more emotive buys than most other things. As it so happens, it is precisely in branding and marketing that the Chinese are weak.