21 August 2014

Chinese Brands Struggling?

From what I understand about the Chinese car market, it is divided into two. There is the joint venture between a foreign car maker and a local company with the overseas side not able to own more than 50% of the company. They manufacture cars together almost exclusively for the local market, in more affluent areas. Then there are local companies who have gone it alone making cars, selling in the poorer interior. They often copy western cars in looks and more, with seemingly no enforcement of copyright by courts in China.

Despite that, the local brands. Joint venture companies are often creating sub-brands at a lower price and expanding into the areas Chinese brands had to themselves. This is putting the squeeze on the local brands, because the quality of joint venture sub-brands is better with the design input from experienced foreign car makers who are operating with them.

Another problem is there are still to many fragmented Chinese brands. Fewer brands pooling resources would help, but who will make the compromise? Regional brands want to hold on to their position. So they are slowly losing ground. One of the bigger players, Geely has just announced a 20% drop in profits and nearly a 30% reduction in domestic sales.

The vision that Chinese officials had with its car industry hasn't panned out as hoped for. That's the nature of market forces. They have kept imports to a trickle through stiff tariffs, and forced car makers into local manufacture. Local brands simply are not good enough and don't appear they will be anytime soon. Excessive government manipulation has not worked, and hasn't anywhere in the world I can think of. If you want to mess things up, get a government involved.

Reducing import duties, relaxing restrictions on how foreign companies can operate within China and creating a market force driven market would surely help. Car makers like Geely may have got more help from foreign technology if all the car makers weren't tied up with joint venture companies where little transfer occurs.

They look OK but would you buy one? 

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