Peugeot agrees main terms of tie-up with China’s Dongfeng

The Financial Times, December 11, 2013

• 1810: The Peugeot family business begins to put down its engineering roots as brothers Jean-Pierre Peugeot II and Jean-Frédéric turn their father’s grain mill into a steel foundry, making everything from coffee grinders to umbrella frames
• 1882: The company turns to transport, making bicycles. The first was Armand Peugeot’s ‘Le Grand Bi’, or penny farthing bike
• 1893: The Peugeot Type 5, which was powered by a two-horsepower engine, was produced from 1893 to 1896
• 1913: The Peugeot 153, whose 2.6-litre, four-cylinder engine produced 12 horsepower, was made in various forms until 1925
• 1929: Peugeot unveils its first mass-produced car, the 201, but sales were are hit by the Depression
• 1934: The top-of-the-range Peugeot 601 rolled off production lines in 1934
• 1940: After the Peugeot 402, produced from 1935 to 1942, the company is forced to build cars and weapons for the German war effort
• 1962: The stylish Peugeot 404 cabriolet became a 1960s icon
• 2010: Peugeot starts production of the fully electric iOn city car
• Today: Robert Peugeot is chairman of FFP, an investment company through which the Peugeot family controls a 25 per cent stake in the car company ©Reuters

PSA Peugeot Citroën and China’s state-owned carmaker Dongfeng Motor have agreed the main terms of an industrial and commercial partnership that will include a large capital injection into the French group in return for technology sharing.

The two carmakers are still hammering out the details but the agreement is expected to involve a €3bn-€4bn capital raising by Peugeot and an agreement for the two groups jointly to develop and produce low-cost small cars for southeast Asian markets.

Peugeot hopes to be able to have the deal announced in the first quarter of next year, according to two people briefed on the discussions.

The French group is desperate to lower its over-dependence on the moribund European car market and is rapidly burning through its capital reserves. Both Peugeot and Dongfeng declined to comment.

Peugeot closed down the first large car factory in France for 30 years this year and reduced its workforce as it seeks to reduce the €3bn cash burn it suffered in the full year 2012. It recently hired a former Renault executive to lead a more globalised push.

The company already has a successful joint venture with Dongfeng building cars in China, but trails rivals such as Fiat and Volkswagen in markets such as South America, and Renault-Nissan in tapping growth in southeast Asian markets.

Carmakers have increasingly turned to alliances and joint ventures to increase their scale and cost efficiencies, but a deal between Peugeot and General Motors to share some products and suppliers has failed to live up to the French carmaker’s hopes.

There are expected to be 5.5m cars and light vehicles sold in southeast Asia this year, roughly half the size of western Europe. But the region’s market is expected to grow by more than half by the end of the decade, versus flat or marginal growth in Europe.

Negotiations are continuing between Dongfeng and Peugeot about exactly how much the Chinese group will pay for what percentage of Peugeot.

The people briefed on the discussions, who declined to be named as the talks were private, added that it could still all fall apart, although this was looking less and less likely.

The French state is contemplating matching any investment made by the Chinese group to maintain French influence over the company.

The most likely investment by Dongfeng and the French state would give the Chinese carmaker and Paris 17.6 per cent each, according to research by Macquarie, with the Peugeot family holding 16.5 per cent and GM 4.5 per cent.

An injection of that size would result in the Peugeot family losing control of the business it founded in 1882.

Based in Wuhan, in central China, Dongfeng is one of China’s largest car manufacturers with annual revenues of $63bn. It already operates a manufacturing joint venture with Peugeot alongside three others – Honda, Kia and Nissan – and last week signed a fifth joint venture agreement with Peugeot’s French rival Renault.

If completed and approved by Beijing, Dongfeng’s tie-up with Peugeot could catapult it on to the global stage – something that no Chinese state-owned carmaker has yet been able to achieve. Hangzhou-based Geely, which purchased Volvo Cars from Ford in 2010, is privately owned.

“Whatever they pay for the shareholding, they’re probably going to get justification in knowhow,” said Bill Russo, a Beijing-based automotive consultant. “Peugeot’s global distribution capacity would also be an advantage for Dongfeng.”

Peugeot accounts for 60 per cent of France’s car production and employs close to 100,000 people locally.

Additional reporting by Tom Mitchell in Beijing

压力重重通用汽车计划转移韩国产能_财经频道_一财网

China Business News, August 16, 2013

在韩国汽车市场销售的汽车品牌主要来自于韩国国内的厂商，比如现代起亚集团。进口税以及本土化率低导致海外汽车品牌很难和现代-起亚品牌竞争。

王含（化名）是一名汽车专业的大三学生，非常迷恋韩国电视剧和电影，但是她发现，出现在韩剧里面的车子不是现代汽车的就是起亚汽车的，极少看到通用汽车、大众汽车等人们耳熟能详的汽车品牌。

王含发现，与中国和美国市场的开放性相比，韩国汽车市场基本上是个封闭性的汽车市场，外来的汽车品牌很难在韩国市场生存。

“在韩国汽车市场销售的汽车品牌主要来自于韩国国内的厂商，比如现代起亚集团。进口税以及本土化率低导致海外汽车品牌很难和现代-起亚品牌竞争。”克莱斯勒东北亚前副总裁、香港协同共进有限公司总裁罗威告诉《第一财经日报》记者。

韩国国内市场的封闭性正在间接逼迫海外品牌撤出韩国市场：通用汽车不断释放退出韩国市场的信号；与之相似的是，之前的7月，日本三菱汽车对外发布消息称，由于该公司在韩国的汽车销售行情不佳，将停止在韩国的销售活动，撤离韩国市场。

多重压力

日前，海外媒体报道，考虑到劳动力成本提升以及工会强势等多方因素，通用汽车正计划退出韩国市场。其实，在多重压力之下，通用汽车从去年开始就不断传递其削减在韩国市场业务的信号。

去年，通用汽车旗下欧宝宣布，将从2014年下半年开始将韩国工厂Mokka车型的部分产能转移至西班牙。

除了Mokka外，通用汽车还宣布，有可能放弃在韩国工厂投产下一代雪佛兰爱唯欧，并将其生产业务交由中国及美国工厂。

转移新车生产基地的一方面原因来自韩国工会强势的文化带来的生产不确定性。通用汽车因为在韩国劳资纠纷等因素对当地制造的兴趣减淡，激进的工会文化和不断攀升的劳动力成本让通用汽车开始重新思考其对韩国市场的业务依赖。通用汽车在韩国市场不断遭遇罢工，去年7月至9月期间，通用韩国公司遭遇了该公司2002年成立以来规模最大的罢工，罢工导致该公司减产4.8万辆汽车。

通用汽车高层对上述媒体表示，需要确保能够将韩国市场上面临的业务风险转移，不仅仅是在未来2~3年，而是在未来很长一段时间，不要再对韩国市场的业务表现出极高的依赖。

过去10年里，韩国市场上的劳动力成本大幅攀升，从而使得韩国市场上的汽车生产成本提升，如果汽车企业再没有规模化优势，其就缺乏竞争力。OECD（经合组织）数据显示，截至2009年的10年时间内，韩国制造业的人均总劳动力薪酬跳涨了119%，高于美国40%和欧元区27%的上涨速度。

除了劳动力成本提升，在过去的一年里，韩元汇率的走强也在一定程度上降低了通用汽车从韩国市场出口的竞争优势，毕竟，通用汽车在韩国5个工厂生产的80%的车型都是出口至海外其他市场。同时，韩国本土汽车市场这两年也不景气，去年韩国国内销量为140万辆左右，下滑4.2%。

封闭市场

韩国市场不仅容量小，同时，也是一个相对封闭的市场，海外汽车品牌在韩国市场不具备竞争优势。

2002年，通用汽车收购韩国大宇汽车以进入韩国市场并获得大宇小型车技术,现在韩国市场已经成为通用汽车重要的出口基地和研发中心。罗威分析认为，大宇作为通用汽车的合作伙伴来说，帮助通用汽车提升了小型车技术，将生产的小型车出口到中国等其他市场。但是，在韩国本土市场，与现代-起亚集团相比，大宇公司并不能给合作伙伴通用汽车带来规模化上的竞争优势。

2012年，韩国5家汽车整车生产企业全球销量共计819万辆，其中出口销量为679万辆，国内销售为140万辆。在韩国国内市场上，现代-起亚市场占有率接近八成，其中现代汽车占42.89%，起亚汽车33.78%，其他份额主要来自通用大宇、双龙，雷诺三星等在韩国本土生产的汽车品牌，进口车奔驰和宝马所占的市场份额微乎其微。

多年来，韩国本土汽车厂商始终保持了以上的竞争格局，其他汽车制造商并未在韩国取得突破性优势，现代-起亚品牌在更早的时期在国内市场占有率曾超过90%。由于不具备规模化优势，海外汽车品牌就很难与现代-起亚竞争。

造成韩国汽车品牌为主导的汽车市场存在多方面原因，其中一个重要的原因是韩国政府对本土品牌的支持，韩国政府通过高关税将外国制造商拒之门外。

韩国政府在1962年制定的《汽车工业保护法》大幅度提高了进口汽车关税，直到1985年韩国汽车工业基本成熟后，才在其他国家的压力下开始逐步降低。1987年进口关税降低到50%，1989年降到25%，到1995年降到8%左右就基本保持稳定，不过即使关税一再降低，进口车仍然在韩国难以有大幅度增长。韩国方面还对汽车进口商推出非关税壁垒措施，比如限制建立进口汽车销售网络；禁止在电视和报刊上做广告；对购买外国高级汽车的顾客进行特别税务检查；政府推行反奢侈和“买韩国货”运动等。

“拥有民族品牌的汽车”是韩国汽车工业规划的重要目标、汽车工业发展的重要标志。他们在较短的期限内有一个非常明确的目标：KD组装—引进技术，提高国产化—国内自主生产，自主开发车型—促进大企业成为骨干企业集团，参与海外竞争—拓展海外市场。

“韩系汽车制造商包括现代及起亚占据充分的本土优势,在上世纪90年代异军突起，在主要竞争领域比如价格、车型、性能、油耗等方面都提供了丰富的、足可以媲美全球竞争对手的产品。当然在韩国汽车起步时期，韩国政府对于本土汽车厂商的倾斜政策也确保了韩系制造商成为市场上的强者。” 普华永道大中华地区汽车行业主管合伙人廖仲敏告诉记者。


(编辑:付筱婧)

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GM Said to Seek Deals in China to Reach 5 Million Goal

Bloomberg Business Week, February 5, 2013

A General Motors Co. SAIC-GM-Wuling Automotive Co. Baojun 630 sedan 

is displayed  at the 2011 Auto Shanghai car show in Shanghai.

The Chinese auto industry is overdue for consolidation and General Motors Co. (GM), with local partner SAIC Motor Corp., is interested in acquiring ailing automakers, according to four people familiar with the companies’ thinking.

GM, already the top foreign carmaker in China, aims to increase sales by about 75 percent by 2015 to 5 million, and a deal with another automaker is one possible way its ventures can expand, said the people, who didn’t want to be identified because the plans are private.

China’s government wants to preserve jobs even as it encourages consolidation that echoes the auto industry’s contraction a century ago that made the Detroit-based carmaker the world’s largest for eight decades.

Expanding in China isn’t as simple as going out and buying another plant. Foreign companies face restrictions on the number of partners they can have or how much of a factory they can own. Last year, China said it wouldn’t give incentives for further foreign-owned auto plants. That started raising the value of underused auto plants, of which there are plenty: 10 of China’s 71 automakers didn’t sell a vehicle last year.

“It is much easier to get the government to sign off on their acquisition than to approve new capacity,” said Han Weiqi, an analyst with CSC International Holdings Ltd. in Shanghai. “It is in line with the government’s mandate of consolidating the industry and reducing the number of players.”

Most Overcapacity

Two calls to the media office of the National Development and Reform Commission, China’s top economic planning body, weren’t answered. 

China has the world’s most overcapacity. Factories in China are able to produce about 10 million more vehicles than they currently make, according to LMC Automotive. That’s more than the number of autos made in any country other than China or the U.S.

GM and SAIC have plans to open two assembly plants in China in 2014. Even then, their joint ventures may be capable of making only about 4 million cars, sport-utility vehicles and microvans a year. One way to stay on track with the 5 million target set when growth was more exuberant would be by taking over assembly plants that aren’t operating at full production.

GM has built up what it calls a fortress balance sheet with more than $23 billion in cash that gives it flexibility to make acquisitions.

“There are no current plans to increase GM’s manufacturing capacity through acquisition or consolidation,” Dayna Hart, a GM spokeswoman in China, said this week in an e-mail.

SAIC, based in Shanghai, declined to comment.

China passed the U.S. in 2009 to become the world’s largest vehicle market and still has room to grow: While 627 in 1,000 in the U.S. own a car and 517 in Germany, according to the World Bank, in China, it’s only 44.

Best Month

The recovery of residential property prices in China’s major cities has accelerated since early 2012, potentially increasing demand for new passenger vehicles, said Kevin Tynan, Bloomberg Industries automotive analyst. GM sales in China last month soared 26 percent from a year earlier to 310,765, its best month ever. Buick and Chevrolet sales each gained 22 percent.

GM has been the largest foreign automaker in China for the past nine years, with about 14.7 percent of the market in 2012. GM said it earned $1.5 billion in 2011 from its joint ventures in China, or almost a sixth of the company’s $9.19 billion (GM) profit that year. Analysts project the automaker, which emerged from a government-financed bankruptcy in 2009, will report its 12th straight quarterly profit (GM) on Feb. 14.

While GM has many opportunities among Chinese automakers, which of them is the most probable target is a complex equation that depends on proximity to markets, ease of transportation and incentives offered by local governments in return for the investments, said Han, the Shanghai-based analyst.

Detroit, Chicago

Some local governments may resist investment and management from overseas or even from another city in China.

“Consolidation does not come easily in China because the governments, central and local, own 50 percent or more of most of the ventures,” Michael Dunne, head of industry researcher Dunne & Co., said in an e-mail. “It might be a good idea for Chicago to take over management/ownership of Detroit but getting there is not easy, even unthinkable.”

China signaled in late 2011 that it would be less inclined to sign off on new plants when it said foreign automakers would only be eligible for incentives on new factories approved before Jan. 30, 2012.

A struggling domestic manufacturer’s ability to build cars in China “becomes an asset,” said Matthew Stover, an analyst with Guggenheim Securities LLC based in Boston. “You’ve got a license, you may not be making many cars with it and your facilities may need a lot of help. But you have a license, so you then become an acquisition.”

Volkswagen’s Push

GM needs to remain aggressive in China. It faces increased competition from Volkswagen AG as the German company aims to become the top-selling automaker in the world by 2018. Among non-U.S. foreign automakers, Wolfsburg, Germany-based VW has fared best in China, almost dethroning GM as the best-selling foreign car company in the country last year.

VW, which, unlike GM, includes Hong Kong in its China tallies, said deliveries climbed 24.5 percent to 2.81 million while sales of GM and its Chinese joint venture gained 11 percent to a record 2.84 million.

VW’s sales were helped by the introduction of new versions of its Lavida and Audi A4L in the third quarter and from a territorial dispute that fueled anti-Japan sentiment. In September, Toyota Motor Corp. and Nissan Motor Co. reported the steepest drop in sales in China since at least 2008.

Ford, Infiniti

Other foreign automakers have ambitions for China as well. Nissan, for example, moved the headquarters of its Infiniti brand to Hong Kong to try to gain share in Asia. Ford, which has been a laggard in China, says that breaking into that market is a priority. The Dearborn, Michigan automaker, which sold 626,616 vehicles in China last year, a 21 percent gain, is seeing some early success: Its Focus compact rose to the best-selling sedan in China last year from 10th in 2011.

Hyundai Motor Co. and affiliate Kia Motors Corp., both based in Seoul, also see potential in China, with their combined sales rising 14 percent in 2012.

All of this growth comes as auto sales continue to gain, if not at the same pace as in the past. Auto deliveries may increase 7 percent to 20.65 million this year, the China Association of Automobile Manufacturers said in January. A consensus is forming that sales may rise to as many as 30 million vehicles by 2020, said Bob Socia, GM China president.

“You need to stay ahead of the curve,” he told reporters last month in Detroit. “Are we ready to announce another plant? No, but clearly we’re looking at what we’re going to need to handle our expansion.”

He declined to say how GM is looking to expand beyond two new plants planned to be completed 2014.

U.S. Consolidation

The idea of GM growing through acquisition harkens back to GM’s origins, when founder Billy Durant used his company’s coffers to gobble up rivals as the nascent U.S. industry was consolidating. Few Americans today remember Winton Motor Carriage Co., the Oakland Motor Car Co. or other automakers, also called original equipment manufacturers (OEMS or OEs), of the early 1900s.

China is ripe for a similar reckoning, Wilbur Ross, the billionaire owner of parts supplier International Automotive Components Group, said in Detroit last month during a presentation at the Automotive News World Congress.

“The U.S. once had 125 domestic OEs, but has devolved down to a small handful,” Ross said. “At present, China has about 100 OEs, many of which are marginal and lack manufacturing and distribution scale and have limited market shares.”

China’s Capacity

China, with more than 110 auto brands, has about 36 percent of its car-making capacity unused, the equivalent of 10 million vehicles worth of over-capacity, according to LMC Automotive.

Of the 71 automakers tracked by the China Association of Automobile Manufacturers, 36 companies sold fewer than 10,000 vehicles in 2012.

Jilin Tongtian Automobile Co., Jiangxi Huaxiang Fuqi Motor Co. and Liaoning Huanghai Commercial Vehicle Manufacturing Co. are among the 10 that didn’t sell any vehicles last year, according to association data. Han, the CSC analyst, said those aren’t ideal acquisition targets.

Local China automakers don’t spend as much to develop new vehicles as global automakers do, Ross said. As a result, the 41 percent of the market they divvied up last year is shrinking, he said.

Future Unclear

While there may be agreement from industrialists such as Ross to China’s Communist Party that automakers need to consolidate, how such a thing would happen is wide open to speculation, debate and innovation.

One notion is that foreign automakers would need to grow through their local partners, which might be better able to negotiate a fair market value for state-owned assets, said Bill Russo, president of auto industry consultancy Synergistics Ltd.

“A more likely scenario will be partnerships among local automakers to allow assets to be shared or transferred,” he said in an e-mail. “In such a scenario, foreign OEMs might work with their local partner to absorb under-performing assets into their existing Chinese JV.”

Alternatively, foreign automakers may not want some local capacity in its current form, Jeff Schuster, an industry analyst with LMC Automotive. An acquiring company may be able to win approval to replace outdated factories to create jobs.

“More likely they will continue to come in and build new capacity and much of the old will be shuttered if consolidation takes place,” he said in an e-mail.

Partnership Acquisitions

The GM-SAIC partnership has acquired money-losing factories in China in the past, including assets related to Daewoo Motor Co. after GM bought a controlling stake in the bankrupt South Korean automaker.

GM and SAIC are partnered on Wuling and its Baojun car brand as part of a strategy to sell vehicles to an emerging working class outside of the major cities, such as Shanghai.

Last year, GM added 700 new stores in China and expects to open another 400 this year to have a total of 4,200 locations, Socia, the division president, said.

GM’s five-year China plan announced in April 2011 called on doubling its sales to about 5 million in the country from 2.35 million in 2010 and introducing 60 new or refreshed vehicles in there within the same time period.

The announcement followed years in which GM’s China sales increased 68 percent in 2009 and 29 percent in 2010, before the country’s rapid economic growth slowed.

With its Chinese partners, GM has eight production centers in China with the capacity of building 3.35 million vehicles this year, according to researcher IHS Automotive.

More Growth

GM, which strives to build vehicles where they’re sold, will have straight-time capacity to build as many 4 million units in 2015 in China, according to IHS estimates. That includes the two new factories in Wuhan and Chongqing coming online in 2014, said the Northville, Michigan-based research firm.

The automaker aims to outpace the market again in 2013, Socia told reporters in Detroit.

“You have lots of people that the government wants to move into the middle class,” he said. “You’ve got 150 cities that are over a million in population. It’s pretty ripe for further expansion.”

To contact the reporters on this story: Tim Higgins in Detroit at thiggins21@bloomberg.net; Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net

Click here to read the article at businessweek.com

Chinese carmakers to face hard time moving up-market; need to perfect processes and technology

The Economic Times of India, July 7, 2012

Like many Chinese, Zong Zhaoxiang wishes nothing but the best for the Chinese car industry - yet he won't be buying a Chinese car anytime soon. The 52-year-old chairman of a Shanghai chemical company, Zong said he expects Chinese branded cars to have bright prospects.

However, he loves the comfort, quality and image projected by his black Mercedes-Benz S-class, and he said he may buy another Mercedes-Benz model or a BMW in the future.

"If Chinese-made cars were better designed and could demonstrate your status, more people might buy them," Zong said. Not all of Zong's compatriots can afford a Mercedes-Benz, of course. But most of them still prefer foreign brands to domestic ones.

Volkswagen and General Motors sold the greatest number of vehicles in China in 2011, the world's largest car market, followed by Nissan, Hyundai and Kia. All domestic car makers combined captured only about 30% of their home market, the lowest proportion of any major economy.

This is not what Beijing intended. In contrast to other "strategic" industries like telecom and banking, the auto industry has been gradually opened to foreign investment over the past two decades, as Beijing allowed foreign car makers to form joint ventures with domestic partners.

But the goal was always to help Chinese manufacturers acquire the technologies and expertise necessary to build their own strong brands, an outcome that eludes the industry.

Race to the Bottom

State-owned car makers - such as Shanghai Automotive Industry (Group) Corporation (SAIC), First Auto Works (FAW) and Chang'an Automobile Group - have begun paying more attention to building their own brands, at Beijing's urging.

It's been an uphill battle. With shorter histories, inferior technology and smaller marketing budgets, their products are mainly confined to the low-cost segment, where profits are thinner.

Meanwhile, independent Chinese carmakers such as Geely, Chery, BYD and Great Wall have introduced their own lowprice models, intensifying competition. Most Chinese brands continue to trade on the China's traditional forte: driving down manufacturing costs and making money on high volume and thin margins.

In contrast, foreign car brands charge double or more and still sell far more units, all on the strength of their brand, technology and styling. The playing field has tipped further towards foreign players in the past few years. First, Beijing ended a tax break on cars with engines smaller than 1.6 litres last year.

"The companies with smaller vehicles tend to be Chinese-branded carmakers. So they benefitted most from the stimulus and were hurt the most by the removal of the stimulus," said Bill Russo, a senior advisor at consultancy Booz & Co and the former head of Chrysler Asia.

The policy had helped overall vehicle sales to grow 46% year-on-year in 2009 and 32% year-on-year in 2010 - unsustainable rates of expansion, Russo said.

Click here to read the article at The Economic Times

Small town, PRC: The promised land for Chinese car companies?

China Economic Review, June 2012

Domestic car companies may be struggling in the wealthy and ultra-competitive markets of China’s major cities. But many industry insiders suggest they will fare much better in the developing markets of China’s smaller towns and cities.

Most people in China still do not own cars – 70% of those who bought a car in China last year were first-time buyers. But personal cars are far more common in the first-tier cities of China’s coast – Shanghai, Beijing, Guangzhou and Shenzhen. The wave of personal car ownership is just beginning to reach smaller cities.

This will likely change the structure of China’s auto industry. Consumers in lower-tier cities have less affinity for foreign brands. They also have less disposable income, making the cheap prices and gas-sipping engines of Chinese carmakers much more palatable.

“Consumers in third- and fourth-tier cities are much more price sensitive than consumers in the first-tier cities,” said Wang You, investor relations spokesperson for state-owned Dongfeng motor. “as a result, there’s likely to be a more stable market for domestic brands there.”

The opening up of lower-tier city markets will definitely be a boon to domestic companies. Autofacts, a division of PwC, projects that the number of vehicles sold in China will nearly double to 27 million between now and 2018. Second- and third-tier cities and other less developed regions are expected to drive nearly 80% of that growth.

Two can play this game

But there are some bumps on this road to riches. For one, expanding sales net- works into lower-tier cities may be a challenge for domestic brands, many of whom already struggle to provide consistent service across their networks. “[domestic car brands] will need to go expand their operations into smaller towns and cities. This could affect their brand image if it’s not handled well,” said Shang Yugui, a vice president and spokesperson for great Wall motors.

And of course, the ability of Chinese companies to capitalize on this growth hinges on remaining competitive in the low-cost segment. But this, too, is under pressure.

One source of competition is low-priced foreign brands such as Hyundai and Kia, which are cheap and fuel-efficient enough to appeal to first-time buyers with relatively low incomes. “[Hyundai and Kia] tend to be very attractive alternatives to locally branded cars, because they are priced not all that much higher, about 20-50% higher depending on what product you’re talking about,” said Bill Russo, an independent advisor at consultancy Booz & Co.

Another source of competition is Sino-foreign joint ventures. at the behest of the central government, JVs such as Shanghai-GM, Mercedes-Beijing and Toyota-Guangzhou have begun launching their own low-priced, joint-venture brands. Beijing’s goal is to encourage more technology transfer – the idea being that to produce a cheap car in China, foreign companies will have to localize their products.

But the upshot is that the lower segment is becoming even more saturated with competitive, low-priced products, such as the Everus 1, from Honda’s joint venture with Guangzhou auto, and the Baojun, a small family car produced by General Motors’ joint venture with SAIC and Wuling.

The Baojun brand “is targeted at price-sensitive, first-time lower-tier city buyers, and that’s going to directly compete against the Geely, Great Wall and Chang’an own-branded products,” Russo said. “The policy objective is to get the foreign companies to share more of their technology, but in the process they’re actually creating more competition in an already hyper-competitive market.”

Click here to read the article in China Economic Review