China's domestic automakers gaining ground

At an international car show in Beijing this weekend, executives from the world's multinational auto companies are gauging the growing competitiveness of local car manufacturers, who are expected to increase their market share in China, which outrank Japan this year and become the second-largest vehicle market in the world after the United States.

China already has more car brands than the United States, due partly to multinational companies engaged in joint ventures with Chinese companies. While local producers cannot yet compete on their own in the western market, because of a lack of marketing prowess, brand recognition and a global distribution system, they are forming alliances with international carmakers to do so.

Geely, for example, which is based in Taizhou, has an agreement with a British company to make the famous London "black cabs" for the world market in Shanghai, while Chery is in the middle of negotiations with DaimlerChrysler to make subcompacts in Wuhu for the American market.

Chinese automakers are gaining strength in the local market, holding about a quarter market share. Their strength seems to be in being able to keep costs down, which allows them to hold down prices. In the 1990's, this was accomplished by imitating foreign design, although the main factor to contribute to savings is inexpensive labor cost at every stage of production.

Affordable compacts and subcompacts have become top sellers in the Chinese market, and this trend is seen to continue in the future. Xu Ping, chairman of Dongfeng Motor, one of China's largest automakers, said that the demand will be driven not by luxury vehicles but by fuel-efficient, middle-class cars.

Around 6.7 million cars and light trucks are expected to be sold in China this year, which is more than the Japanese market. In comparison, about 16.7 million cars and light trucks are estimated to be sold in the United States. By next year, sales of cars, minivans, and sports utility vehicles in China will outstrip that of Japan.

In China, where 80 percent of buyers are purchasing their first vehicle, offering low-priced cars is crucial. Before China's entry into the World Trade Organization in 2001, it had some of the highest car prices in the world. Taxes nearly doubled the price of imported cars.

Lower tariffs, coupled with new models and new car factories have helped bring car prices down to international levels for globally traded cars. Domestic brands sell even more cheaply and are becoming accessible to the growing middle-class.