From today's NY Time:
June 7, 2004
G.M. to Spend Over $3 Billion to Expand in China
By KEITH BRADSHER
EIJING, June 7 - Brushing aside slowing growth in car sales and broader
concerns about the Chinese economy, General Motors executives announced here
today that their company and its local joint venture partners would spend
more than $3 billion by 2007 to expand operations in China.
The heavy investment, to build new factories, expand existing ones and
greatly increase G. M.'s engineering and design activities, is the latest
and largest in a series of big investments by the world's leading
automakers, all of which are racing to profit from the world's
fastest-growing economy.
Volkswagen, Toyota, Nissan and DaimlerChrysler are all engaged in big
expansion projects here. So are their joint-venture partners, notably the
Shanghai Automotive Industrial Corporation, First Auto Works and the
Dongfeng Motor Corporation.
The ambitious plans underline the extent to which some of the world's
largest companies continue to place big bets here even as Beijing officials
try to slow a galloping economy in response to rising inflation.
A publication controlled by the central bank warned today of a possible need
to raise interest rates if inflation continues to rise. Three government
agencies jointly announced restrictions today on the ability of foreign
banks to bring money into China, as a way to discourage capital inflows that
have fed growth in the money supply and inflation.
The China Banking Regulatory Commission recently began urging banks to be
more cautious in lending to car buyers. And a slew of government agencies
are seeking to slow real estate speculation, the source of many fortunes
that are now being spent partly on new cars.
After growth approached 10 percent in the first quarter, the government has
been trying to slow it to a still brisk and possibly more sustainable annual
pace of 7 percent.
Phil Murtaugh, the chairman and chief executive of G. M. China Group, said
that G. M.'s sales in May were still up a healthy 20 percent in China from a
year earlier, although after soaring at an annual pace of 80 percent earlier
this year. China has so few cars relative to its population that even if the
economy does slow, G. M. will still be able to sell a lot of cars here in
the years ahead, Mr. Murtaugh said.
"Let's assume there's a dip - well, there are 8 cars per 1,000 people" of
driving age, he said.
G. M.'s announcement of expansion plans came two days before the Beijing
auto show opens on Wednesday, and mark an acceleration by the company of
already ambitious growth plans.
The company said last autumn that it would increase its annual production
capacity to 865,000 cars, minivans and pickups by 2007 from 530,000 now.
Mr. Murtaugh said today that the company's new target was to have an annual
capacity of 1.3 million vehicles in 2007. G. M. will also expand its design
and engineering center in Shanghai so that by 2010, the operations here will
be able to produce entirely new models, as G. M. already does in the United
States and in Germany.
Even if the economy does slow somewhat in the short run, he said, "It's only
a matter of time before that 1.3 million won't be enough."
Mr. Murtaugh insisted that anything less than brisk expansion now would be a
mistake. "For the people doing that, I believe there's a high risk of
danger, of the margins not being there when they get there," he said, in a
thinly veiled jab at the Ford Motor Company, which has been more cautious in
China.
The more than $3 billion needed for these activities, plus a leap in auto
financing in China, will come entirely from cash generated by the joint
ventures, Mr. Murtaugh said. While G. M. does not publicly break down its
profits by country, financial analysts say that the Chinese operations are
highly profitable because G. M. was early in entering the market and has
been benefited from high, although declining, trade barriers that have
limited imports.
G. M. has paid some dividends from its operations here to the parent company
in the United States, but has mostly reinvested them in further expansion
here.
Michael Dunne, the president of Automotive Resources Asia Ltd., a consulting
firm based in Shanghai and Bangkok, said that in growing from less than 1
percent of the Chinese car market to 11.5 percent now, G. M. had repeatedly
bet on further growth when other automakers had been more pessimistic.
"They've gotten it right every step so far - their market share is up, their
profits are up," he said. "The one question is how hard the government will
weigh down on growth - if they really come down on loans, that will hurt.`
Regulators have been worried that banks are lending recklessly during the
current boom, and have tried to restrain them for fear that they will
otherwise add to the banks' formidable collections of nonperforming loans.
Christian Weidemann, G. M.'s director of financial services in China, said
that the company was close to winning permission from regulators to begin
offering its own loans to dealers and car buyers through the General Motors
Acceptances Corporation, much as it does in the United States.
Mr. Weidemann estimated that the buyers of only 18.5 percent of the cars
sold in China last year took out loans, with the rest paying in cash. That
is far below the 60 to 85 percent of buyers who use loans or leases to
acquire vehicles in developed countries, suggesting considerable room for
growth, he said.
Mr. Dunne estimated that the proportion of cars being financed with loans in
China had dropped to 10 percent in recent weeks because of the government's
regulatory crackdown.
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