GM Commits US$3 Billion to Expand China Market
General Motors has committed US$3 billion to fund production
expansion in China to over 1.3 million vehicles and over
20 new models by 2007.This would more than double production
from the current amount.
The announcement was made near the beginning of the Beijing
car show, which is due to start on June 9, and underlines
the company's commitment to what is now the world's fastest
growing car market. The company said that the expansion
would be completely funded by earnings from its joint
venture, and include models in the intermediate and luxury
car segments.
The Chinese market has grown by between 60 and 80% in
2002 and 2003 to reach 2.1 million vehicles, and 45% until
April year-on-year. The growth rate slowed in May to 15-20%,
mainly because of the Chinese government's efforts to
slow growth. This is seen as a short-term policy, and
all other major makers, including Toyota, Nissan, Honda
and Volkswagen, have announced investments totaling US$10
billion by 2007.
Many auto industry critics have pointed out that the
production capacity of the plants may exceed China's needs,
but China Business Strategy predicts that much of the
excess capacity will be exported to other markets. In
any case, older, less profitable plants will be closed,
and production will shift to China as it becomes the low-cost
manufacturing leader. Honda Denway, the company's joint
venture in Guangzhou, has already exported its Honda Accords
to Asian destinations.
Last year, General Motors also received approval to offer
auto
financing services in China. In the US, General Motor's
financing arm, GMAC, is more profitable than the automobile
manufacture part of the entity.
In China, General Motors has been plagued by piracy problems.
In the best-known case, General Motors is fighting with
Chery, a state-owned enterprise in Anhui province, which
makes a mini-car, the QQ, and sells it for US$6,000 (50,000
yuan). The company sells 3,000 - 4,000 vehicles a month
of the model, which is said to be based on GM plans. GM's
version of the same car, the Chevrolet Sharp, is priced
at US$7,400 (61,000 yuan), and sells only 700 - 1,000
vehicles a month.
The case is currently in mediation because Shanghai Automotive
Industrial Corp. (SAIC), GM's largest Chinese joint venture
partner, transferred some of the rights to Chery.
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