S.E. Asian auto industry to feel squeeze from China

BANGKOK, May 22 Reuters reported that Southeast Asia's auto industry will find itself squeezed by stiff competition from giant emerging neighbour China, but that will not spell its demise, industry experts said on Wednesday.

China's expanding middle class, robust economic growth, low rates of vehicle ownership and the phasing-out of tariffs now that it has joined the World Trade Organisation have auto makers champing at the bit.

Southeast Asia will be hard pressed to compete. The region could be squeezed out by the likes of GM, Ford and Toyota in the race to get the Chinese to swap bikes for cars.

"Now China is a WTO member and the tariffs have gone, things are going to get a whole lot tougher for ASEAN," Phil Murtaugh, chairman of General Motors China, told an industry conference in Bangkok.

The Association of Southeast Asian Nations (ASEAN) groups Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.

GM's Murtaugh said China, with just 13 cars for every 100,000 people, was primed for huge growth.

But China is likely to develop in line with the largely self-sufficient North American market, where supply meets demand, he said.

ASEAN produced just 1.23 million vehicles out of a total of 17.8 million in Asia in 2001. Japan produces the most vehicles in the Asian region, followed by South Korean, China, India and Thailand. Sales in Japan, China and Korea and even India are a long way ahead of individual ASEAN countries.

FOR EXPORT

Manufacturing vehicles for export could provide a niche for smaller countries, such as Thailand, as Japanese carmakers look to cut costs.

"China's market is growing so fast. I don't think there are going to be Chinese manufacturers who will be thinking we've got to export to survive. I don't see that," Murtaugh told Reuters in an interview.

"Thailand is in a completely different situation and they have to export. But can (cars made in) Thailand compete in China's domestic market? Absolutely not."

Thailand produced 459,OOO vehicles in 2001, of which 38 percent were for export.

But if ASEAN wants to move up a gear, opening up a regional free trade area (AFTA) between members is key.

"ASEAN markets are individually very small markets, but if AFTA occurs and it can be treated as an integrated market -- only then can it compete with China," Ashvin Chotai, a London-based auto industry analyst, told reporters.

"Thailand would likely be the main beneficiary, but Indonesia and Malaysia could stand to gain too."

Under AFTA, member countries have to bring tariffs down on imported cars to zero from five percent by 2003. But Malaysia, which produces its own cars such as the Proton and has been given an extension to 2005, wants the pact re-examined.

Chotai said car makers were unlikely to shun Southeast Asia because it was a risky strategy for large car manufacturers to focus purely on China.

"In the long view, if you are a big manufacturer, you can't just invest in one country, you shouldn't put all your eggs in one basket," Chotai said.

"China weathered the Asian crisis well, but that doesn't mean there are no risks there."