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Chinese carmakers push to go global
Trefor Moss and Vibhuti Agarwal, Wall Street Journal, 11 August '19

Chinese automakers are investing billions of dollars to establish footholds in foreign markets, from India to Africa and Europe.

China's car manufacturers once struggled to sell their cars at home, let alone abroad. Now, the cars they are producing are much improved, analysts say, matching foreign rivals on quality and outflanking them on price. Leading Chinese brands are aiming to capitalise by building their first major factories overseas, realising Beijing's long-held strategic ambition for homegrown car makers to become globally competitive players.

SAIC Motor, China's biggest automaker, in June began testing the Indian market with a new SUV called the MG Hector, releasing 21,000 vehicles it expected to sell over six months; the SUVs sold out in four weeks.

Dealerships had to turn away customers like Shiv Nagpal. Mr. Nagpal, who works in his family's jewellery business, said Chinese products have a good reputation in India. "Even the fancy iPhone is made in China," the 37-year-old said recently at an SAIC dealership in eastern Delhi. "We want to try a new Chinese brand."

China's automakers have the resources to back their overseas push, said Michael Dunne, chief executive of automotive consulting firm ZoZo Go. "They are ready to lose money for 10 years" to establish themselves, he said.

Their ambitions are growing even as U.S. auto makers have retreated from many foreign markets. Mr. Dunne, who ran General Motors' Indonesia plant from its opening in 2013 until it closed two years later, said: "Western auto makers insist on a path to profits within 36 to 48 months, and that's just not going to happen in a country like Indonesia," where it takes time to build a brand and grow market share.

The Chinese companies have a powerful incentive to move overseas. Even though their home market is the largest in the world, car sales are stagnating after decades of growth.

Companies going abroad face the painstaking process of brand-building and constructing local supply chains and national dealership networks, which can take years and billions of dollars to achieve. Also, many of the countries Chinese auto makers are entering are dominated by Japanese auto makers.

China has faltered in such efforts before. A decade ago, state-run FAW Group unveiled plans to conquer Latin America by building a factory in Mexico to assemble kits shipped from China. The venture fell victim to the global financial crisis and never got off the ground. In 2014, Chery Automobile, another state-owned player, invested US$ 530 million in a plant in Brazil. Sales never took off, and Chery put the plant up for sale in 2017.

The current crop of Chinese companies is more capable and mature, having built competitive businesses at home that are taking away market share from many foreign players. Ultimately, these companies are eyeing the U.S. and other well-off markets. For now, they are focusing mainly on developing economies.

State-run SAIC has opened plants in Indonesia and Thailand in the past two years, from where it plans to export across Southeast Asia. It is aiming for 1 million overseas sales a year by 2025. Great Wall Motors opened its first overseas plant in Russia in June. And state-owned BAIC Motor last year started production in South Africa, opening a US$ 772 million facility that is the biggest Chinese investment in Africa to date.

Zhejiang Geely Holding Group, which owns Volvo Cars, in 2017 opened its first overseas plant for its Geely brand in Belarus to serve Russia and Eastern Europe. Geely launched its first vehicle for the Southeast Asian market in December, following its 2017 acquisition of 49.9% of Malaysian auto maker Proton. And Geely's commercial electric-vehicle unit, London EV, began production at a new U.K. plant two years ago.

"Global expansion by Chinese brands is a natural growth plan," a Geely spokesperson said, recalling how Japanese and Korean auto makers transformed themselves into international brands in the 1970s and 1980s.

SAIC declined to comment. Great Wall and BAIC didn't respond to requests for comment.

In India, SAIC is being buoyed by the unexpectedly strong demand for its MG Hector, which is a retooled version of a hot-selling Chinese SUV, priced locally at around US$ 17,700. SAIC acquired MG, a century-old British marque, in 2007. It also bought GM's India plant a few years ago.

The company is banking on India's unrivalled potential: Only 3.5 million cars are sold there annually, a fraction of China's 28 million. But incomes are rising, and auto sales are forecast to grow with them.

SAIC has arrived at the right moment to tap into that, said Paul Blokland, director of Segment Y Automotive Intelligence. "The upside for the next 10 years is gigantic," he said. "If I'd been GM, I think I'd have stayed."