RALLYING CRY NewsChina Magazine — Volkswagen Santana sedan I

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Volkswagen Santana sedan I

Auto Market

RALLYING CRY

Chinese car brands hope to the fight to their foreign and competition. Will they be to level the playing field?

May Issue | by Li Jia

China-made autos a cargo ship in the port of Dalian, Liaoning Province, 15, 2012 Photo by CNS

Volkswagen and taxies at Beijing Capital Airport, November 24, 2009 by CNS

French Prime Minister Ayrault (left) visits the Peugeot-Citroën Automobile (DPCA) in Wuhan on December 7, 2013 by CFP

In 1985, Volkswagen’s first plant was opened through its partner SAIC, which 50 percent of the company’s shares. VW and the Chinese government agreed the half-half shareholding was a good for their new venture.

The plant, in the suburbs of Shanghai, was to produce the VW (known as the Quantum in North Carl Hahn, VW AG’s at the time, recalled in his memoirs how it was for him to persuade his skeptical board of potential to become an even auto market than the US. In the the global auto industry was to recover from soaring oil and economic downturn, but few thought a developing nation like could ever have the power to revive the marketplace.

initially, these suspicions correct. Sales of the VW Santana largely attributed to government and taxi companies catering to the few who could afford such China’s leaders even had to their own domestically-developed sedans in to offer VW a clean run at the market. At the even the Chinese government planning to put a car in every garage. the leadership hoped that of the Santana would shore up the meager foreign exchange and, in the best-case scenario, a little cash in through

Now, China’s economic has made the country the world’s auto maker and market, a it claimed in 2009. Despite restrictions on auto purchases in big designed to ease congestion, trend has continued to grow. all major auto makers Europe, the US, Japan and South have gone into with Chinese partners the late 1990s. The resulting ventures accounted for about 60 of China’s domestic passenger sales in 2013. An ongoing for foreign-branded vehicles has ensured China’s own car brands have had restricted to the absolute lowest end of the

This undisputed dominance has led giants to call for something to themselves previously and China’s — a relaxation of the 50 percent cap imposed on foreign joint ventures operating in China. these calls have rebuffed by both their Chinese partners and the government, they have been up by perhaps the most unlikely of — China’s indigenous makers.

Broken Shield

The 50 investment cap limit was first in a national auto policy in which determined to make particular industry a pillar of national economy. In 2004, as a of its joining the WTO, China had to a similar cap imposed on the auto industry, however managed to the limits on completely built (CBUs). The government was also to abolish auto import and the requirement for “local content” to be in all auto manufacturing.

Then, in China started to impose 25 tariffs on imported auto valued at above 60 percent of the price of a CBU, rather the 10 percent tariff on auto it had previously levied. This was stopped in 2009, however, China lost a 2008 WTO to the EU, the US and Canada.

Two shields remain, at on paper, “protecting” China’s auto industry from competitors. Firstly, according to auto policy, a foreign-owned can only have two CBU joint in China at any one time. Secondly, the 50 foreign-owned share cap has remained in

The former provision has already broken, at least in practice. In General Motors invested in Wuling Motors through its venture with SAIC, and companies are likely to follow example. This has left the 50 shareholding limit the last against total foreign Consequently, it is frequently cited as by the country’s hawkish economic

In November 2013, Shen spokesperson for China’s Ministry of (MOFCOM) said at a press that China would relax restrictions on registration shareholding and business” currently on foreign investors in China-based auto and chemical concerns. In 2014, Xiao Chunquan, for the Ministry of Industry and Information (MIIT) responded to a question on the 50 cap by promising to implement further reinforcing pledges made in an set during the high-profile Chinese Party’s plenary session in 2013.

These commitments, one and the other vague, immediately ferocious debate. In February, the Association of Automobile Manufacturers warned in a public statement lifting the cap would “give companies with the advantage of supply chains the chance to smash China-made autos” by domestic firms.

Autos by Chinese joint ventures are higher than the same sold on foreign markets, as a consequence of the mandatory “development paid by joint ventures to foreign parent companies. fees were imposed as a of China’s refusal to allow foreign-owned subsidiaries of any company to up on the Chinese mainland. Many suggested that to take step would dramatically the cost of foreign-branded autos in China.

This situation is positive that China’s that restricting foreign brands’ domestic presence to ventures has not helped foster innovation. In a series of articles on the CAAM website, Dong executive deputy president of the said that all RD profits, with the bulk of revenue from equipment manufacturing, building and parts manufacturing, flowed out of China, leaving ventures to carve up the meager Dong concludes that companies overwhelmingly benefit the current market conditions.

While the joint venture has not mitigated Chinese companies’ on foreign technology, it has reduced partners’ reliance on their partners to understand the local Dong, along with observers, has raised concerns today’s joint ventures immediately fall under control were the shareholding cap to be

At the end of February, representatives from Chinese auto companies joint ventures, GAC, Dongfeng and Chang’an, gathered at a in Beijing to express opposition to the foreign shareholding policy. A at their books explains About 95 percent of sales by the Motor group in 2013, for were derived from its ventures with VW, GM, Volvo and The message at the forum from companies was simple: Give us time, or watch China’s auto industry collapse.

The analysts are asking, however, is these foreign-dependant so-called auto manufacturers can even to represent China’s indigenous industry.

Real Players

It is no that all Chinese companies involved in joint ventures foreign auto manufacturers are Indeed, it was not until 2001 the Zhejiang-based Geely became the Chinese private company to a government license to build a car. Even this observers said, was a reluctant from the central government to made by the WTO. Many got the that the government would preferred to keep the auto entirely in State hands.

private companies were market access, they fast enough to achieve the joint ventures had failed to not only to build Chinese but to successfully sell them. Wall, for example, sold 47 more SUV units in 2013 on the market than the second on the top ten list, Beijing Hyundai, to the website China Automotive Net. Chinese brands private enterprises like Great Wall, Lifan and JAC are now the main exporters.

A study in February by international consultancy Berger found that automakers were “using alternative distribution models to the European market more than previously possible,” the study acknowledged that it be a tough road ahead. change is afoot. Over the few years Geely has acquired Bronze, the British auto behind London’s iconic cabs. Geely also the Volvo brand from and Australian auto parts DSI.

Meanwhile, electric buses by BYD, a Hong Kong-listed in which Warren Buffet a 10 percent stake, are already in in Europe, Canada, Southeast and South America. The company’s plant in California began in 2013. Lifan, on the other has been the champion Chinese brand in Russia since

Volkswagen Santana sedan I

Nearly all of these companies overseas RD centers, and work various international partners maintaining their independence. joint ventures might be for turning green with

Joint ventures have trying to develop their own in the past few years, though the has failed to open its arms. on old models of foreign brands, is little that is new in these and many see them as token simply to give the illusion of Even the government does not much interest in these brands,” omitting them government procurement lists in of privately-owned brands of indigenous

Jia Xinguang, a well-known independent industry analyst, described the of developing local brands the joint venture umbrella as When Chinese SOE giants in ventures make money foreign brands, he explained to . they do not have the motivation to as much effort as private lacking market share in of developing their own brands scratch.

Even for those local brands developed by ventures, the Chinese side end up having to pay for the full ownership of the if their foreign partners to cease the partnership in future, Jia. By contrast, private like Geely and BYD, already developed their own spirit.

Predictably, critics of the quo have accused the government of SOEs, and not giving due credit to efficient, successful and profitable enterprises.

Li Shufu, founder and chairman of is a strong advocate for easing all the market barriers extant in — including those on foreign automakers. Li has made calls for fair competition on an open market for all. At a conference in Beijing on March 4, he the existing joint venture as a “State-owned and foreign alliance” private Chinese enterprises the cost of consumers’ interest and competitiveness.”

Li also recognized his company would face market pressure if more investment were allowed China, but insisted that play” would give including Geely, a “fair

Indeed, China’s private makers desperately need room to grow, as joint particularly those from and Korea, have begun to eat their market share, at the lower end, which in 2010 at 46 percent.

At a forum in in Chengdu, Sichuan Province, Li delegates that he had to “cover his and warehouse with a cloth” to government inspectors from he was attempting to develop a passenger Despite the lifting of the ban on private in the auto industry, industry adopted in 2004, which effective today, set high requirements criticized by analysts for out of reach for most private The policy also says private investors cannot get by buying into SOE auto a way that most today’s auto giants like and BYD started their businesses. Li that a company of a size to electric sedan manufacturer could never go into legally in China so long as the restrictions remain in place.

the years, China’s auto has very often been on the list of overheating sectors. when carrots are offered, typically go to SOEs, leaving enterprises to bear the brunt of the wielded by regulators when get out of hand.

Many auto State and private, expect to once China’s market is open, Jia Xinguang told our He added that the fear of under is good for the industry, and automakers should be given an fighting chance.

Local governments prefer produced auto brands, joint ventures or Chinese, for use as and as targets for new energy auto This “buy local” disadvantages auto makers other cities or provinces. As brands by joint ventures enjoy national recognition and private brands do not, market fragmentation disadvantages brands more. This is why the has been criticized for years.

An war is now seen as the only chance for brands to secure their

At a forum in Wuhan, Hubei, in 2013, Chen Lin, a MOFCOM official, stated there were no shareholding imposed in foreign markets Chinese auto companies increasing their investment. he commented, proved an “imbalance of

The US and EU have threatened to hinder investment in their markets if continues to obstruct foreign wishing to enter China. pressure has only increased the launch of China’s investment with the US and the EU, and the development of the US-led Partnership which, depending on the could make or break fortunes in international trade.

On 5, Miao Wei, MIIT finally made it clear the limit would remain for time, but he stressed that is limited” for local brands to things around. China’s indigenous automakers, meanwhile, to chafe.

Volkswagen Santana sedan I
Volkswagen Santana sedan I

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