China's domestic auto market was meant to be a pot of gold for the world's top car makers but export strategies pursued by Chinese companies could soon turn the tables on the multinationals, analysts say.
Growing concerns for international car makers about a potential flood of cheap Chinese cars came last week with official data showing China's vehicle exports exceeded imports for the first time.
Exports reached 135,000 units in the first 10 months of this year, 7,000 more units than were imported.
Although the export market is still in its infancy in China, accounting for some 2.0 percent of the total production, Chinese startups such as Geely Holding Group (
The Chinese companies currently export vehicles mainly to Africa, the Middle East or Southeast Asia.
But by 2007 Chinese cars are expected to begin selling in the US, while some are already available in Europe.
Chery shocked markets in January with a deal to sell its passenger cars in the US, the world's largest market and where the giants -- General Motors, Ford and Chrysler -- are already under siege from Asian competitors led by Toyota of Japan.
Geely, China's largest private auto maker, also announced in September it planned to boost annual output to 2 million cars by 2015.
Two-thirds of its projected volume is targeted at international markets, including the US and Europe.
"In face of fierce competition and over-investment in the domestic market, some automotive manufacturers have started exploring overseas markets," said KPMG in its 2005 China Automotive report.
It said some global manufacturers had also started investing in facilities in China for export purposes.
One of Honda's factories in Guangzhou, which is targeting European and Asian markets, began exporting cars to Germany in the middle of this year, according to the report.
Still, foreign manufacturers do not yet recognize China as an attractive export production base due to fears that Chinese-made cars may cannibalize their production in overseas markets, KPMG said.
Labor union issues as well as the cost of assembling cars in China due to the import of high-quality parts are also holding back production, the report said.
That is not the case for Chinese manufacturers, which face their own obstacles but are clearly laying the groundwork to challenge global competitors sooner rather than later.
"It is preparing and developing experience in small markets now so as to give itself a platform to launch in countries like the US in the future," said Yale Zhang, a senior Shanghai-based analyst with US auto consultancy CSM.
"Chery has lots of follow-up models, better quality, design and technology content, and low prices, which will give it a chance in the US from 2007," Zhang said.
Critics say China's automakers are far from ready to export passenger vehicles to major markets and their chances of penetrating the US and Europe are clearly hindered by poor quality and safety standards.
"Quality issues for Geely, Chery and others mean they have a fair way to go still," Automotive Resources Asia analyst Ben Asher said.
In one notorious example, Landwind, a sports utility vehicle from China's Jiangling Motors, received abysmal safety marks when tested in Germany.
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