Japanese Carmakers Settle in Hong Kongized Southern Region in China

GUANGZHOU, China, July 25, 2003; Alison Leung writing for Reuters reported that a latecomer to China's auto manufacturing boom, the wealthy Pearl River Delta region is racing to make up for lost time with the help of Japan's three biggest carmakers.

Toyota Motor Corp is close to signing a joint venture to build sedans in Guangzhou, a top municipal official says, and rival Honda Motor Co is set to nearly double output this year through a joint venture with a unit of Denway Motors.

A new US$2 billion joint venture between Nissan Motor Co and China's Dongfeng Motor Corp is also building a plant here that will be able to make 120,000 cars a year by next April, and eventually double that amount.

"The market is here," said Lin Yuan He, executive vice mayor of Guangzhou, which has the highest percapita income in China.

Lin is in charge of industrial development in the capital of Guangdong province, which borders Hong Kong and has traditionally been China's light manufacturing powerhouse.

The Japan-Guangzhou tie-up is partly a marriage of convenience. Like Guangzhou, Japanese manufacturers were late to join an industry long dominated by Germany's Volkswagen, which controlled 40 percent of the China market last year and has about 33 percent this year.

By comparison, Japanese cars make up just 16 percent of those sold in China, according to Deutsche Bank.

Nearly one in three passenger cars sold in China is bound for the Pearl River Delta region, according to the Hong Kong Trade Development Council. In the city of Dongguan, near Guangzhou, one in five households owns a car.

Nearly half the cars made by Toyota's joint venture plant in Tianjian in northeast China end up in Guangdong, Lin added.

PLAYING CATCH-UP

To grab a piece of an industry that has been concentrated in Shanghai and cities to the northeast, Guangzhou is aggressively courting industry players, from car and parts makers to service providers and steel firms.

Lin said in an interview that the city government is in talks with Japanese and German steel makers about forming a Sino-foreign joint venture to produce steel sheets for cars in Guangzhou's industrial zone of Nansha.

He estimated the city's sedan production would double this year to 200,000 units, and double again in 2004.

"If we get Toyota, Guangzhou will become one of the major sedan production bases, with capacity rising to between one million and 1.5 million in 2007-2008," he said.

Total Chinese car output doubled in the first half of 2003 and is on track to hit the two million mark this year.

At the Nissan venture's older plant here, once a tie-up between Dongfeng and Taiwan's Yulon Motor (, neatly-dressed workers were installing seats in the company's popular Sunny sedans on a recent afternoon. On some days the plant makes the Bluebird model instead, depending on demand.

Next door, construction proceeded on the new, more automated plant, which is part of a multibillion dollar investment binge by foreign carmakers in China that has raised fears of a glut.

SOUTH CHINA'S JAPANESE ACCENT

If Toyota builds its plant here, it will mean that Japan's top three carmakers all have production facilities in Guangzhou, forming a cluster that analysts said would attract more parts makers to the region and thus lower production costs.

"Nissan and Toyota's moves to Guangzhou, and their attitude, are more cooperative than competitive," said Deutsche Bank analyst Lawrence Ang.

Japanese cars are popular among consumers in southern China for their fuel efficiency and stylish designs that are updated along with international model rollouts.

By comparison, a Guangzhou plant that made a lone, dated model from France's PSA Peugeot Citroen (Paris proved a flop.

"In the China market, Japanese cars' image is better than European cars'. Consumers always associate Japanese cars with quality," Ang said.

Where governments and companies once bought most passenger cars in China, about 70-80 percent of buyers from the Nissan-Dongfeng venture in Guangzhou are private individuals.

"Consumers are more discerning than government users," said Gu Hong Nian, a spokesman for the Nissan-Dongfeng joint venture.