Cracking China's car market
By Steve Schifferes
Globalisation reporter, BBC News, Liuzhou, Guangxi Province, China
The sleepy, provincial town of Liuzhou is more than 1,200 miles (1,931km) from Shanghai, and 10,000 miles from Detroit. Yet for General Motors, which Toyota claims to have overtaken as the world's largest car company, it is Liuzhou rather than Detroit where the company's future may be decided.
GM has come to Liuzhou to produce a tiny minivan, the Wuling Sunshine, which is a best-seller in China, selling more than 460,000 vehicles a year. The van costs $3,700 (£1,872), has a 0.8 litre engine, have a top speed of 60 mph, and weighs less than 1000kg - yet cheap labour costs mean that GM makes a substantial profit on each vehicle it sells.
Rather than use automation, the Wuling Sunshine is made on an old-fashioned assembly line, which would not look out of date in 1940s Detroit. But with labour costs of just $4 per hour - half the rate in Shanghai - GM Asia Pacific boss Nick Reilly says that the company is only spending $100 per vehicle on labour - and the factory is working around the clock on a three-shift system.
Now GM is investing $350m in building a modern engine plant on the site of the Wuling factory to build 1.1 litre engines, which will open in August, and has expanded production by acquiring another factory in Qingdao. It is the opposite of GM's North American strategy, which has concentrated on selling big, expensive SUVs and trucks - a strategy now threatened by higher petrol prices and changing consumer tastes.
For GM boss Rick Wagoner, China represents a "new model" of production, where the company can make money again as a volume producer of cheap cars, unhindered by union contracts and huge fixed costs.
Rush to China
GM is not alone in identifying China as its key market for the future. There will soon be more cars in China than the US. China's car market grew 25% last year and it has overtaken Japan to be the second-largest car market in the world with sales of 8 million vehicles, including light trucks and minivans.
But with just six car owners per 100 people, compared with 90% car ownership in the US and 80% in the UK, the potential for growth is enormous. According to the research company AC Nielsen, China also has more people who aspire to own a car, but currently do not, than any other country. Also, analysts Roland Berger Associates estimate that the worldwide demand for small cars will rise by 30% in the next decade.
But with the average income in China less than $3,000 a year, reaching the mass market in China is a very different exercise to selling cars in the US or Europe.
Rural marketing
According to James Hu, the sales director of GM-Wuling, the typical Sunshine minivan buyer is male, a small businessman, a high school graduate, and earns between $200 and $500 per month. Over 80% are first-time buyers and most plan to use their minivans for both home and business - sometimes replacing the three-wheeled bicycles in which they used to transport their goods.
Most pay in cash, with sometimes the whole family coming into the dealership with the money in hand. Wuling markets the vehicle through rural China and is expanding its dealer network, which is strong in the poorer, Western regions. In some smaller cities, it shows films in town squares to attract customers.
Fierce competition
Wuling also markets GM's low-priced entry-level car, the Chevrolet Spark, which was designed in Korea. But the Spark, which sells 40,000 vehicles a year, is facing fierce competition from Chinese rivals, especially the Chery-made QQ, which GM at one time accused of stealing its design.
The Chery QQ is 10,000 yuan (£658) cheaper than the Spark and according to vice president Jin Yibo it can compete successfully with the Spark because it has lower development costs. Its sells four times as many small cars as GM. Chery - also based away from coastal China, in Anhui province - is aggressively rolling out new models, including a new A1 compact that was one of the stars at the Shanghai Motor Show.
Overall, rising competition is causing the price of new cars in China to fall by between 7% and 8% per year - cutting into the profit margins of companies like GM.
Rich toys
But China is still a diverse market. Buick is marketed as a luxury brand in China. While GM is selling minivans in rural areas, it is also building and marketing Buicks and Cadillacs in Shanghai, where the Buick van has become a status symbol for companies.
Although the number of private car owners is increasing rapidly, an important part of the Chinese car market is still corporate, especially in the rich coastal cities. With chauffeur-driven cars customary for executives, GM found that the most important modification it had to make for the Chinese market was to increase the size and comfort of the back seat, where the company bosses tend to sit.
GM has even designed a new concept-car version of the Buick at its China-PATAC design centre. But the luxury market is also getting crowded, as multinationals such as Toyota launch their own luxury brands in China. And GM's joint venture approach - its Buicks are built with state-owned Shanghai Automotive Industy Corporation - means it has given its potential rivals access to its technology.
Opportunity
It is not just car companies that are flooding into China. Consumer companies and retailers from around the world are rushing to capitalise on the world's third-largest economy, which has been growing at a rate of 10% per year for two decades.
For most multinationals, Chinese consumers, not Chinese workers, are now their main focus. But understanding how to make a profit in this crowded and diverse market is the real challenge. This is part of series on how globalisation is changing China. Future articles will look at the financial services industry, China's drive overseas, and how Shanghai is tackling pollution.
Showing posts with label China. Show all posts
Showing posts with label China. Show all posts
Friday, November 23, 2007
May 27, 2007 Can Shanghai turn green and grow?
Can Shanghai turn green and grow?
By Steve Schifferes
Shanghai has been transformed into a global city - but its rapid growth has produced pollution, traffic jams and overcrowding. In becoming one of the centres of the world economy, Shanghai has grown faster than almost any other global city in the past 15 years. The population increased from 13.5 million to 21.5 million as migrant labourers flooded in from the surrounding countryside, and the standard of living rose even faster, with per capita income now at $7,000, the highest in China.
The physical size of the city increased sixfold, from just 100 sq km to 680 sq km, as people sought more space and the city government rushed to develop nearby areas, such as Pudong. Three ring roads and six motorways now criss-cross the city, and gridlock grips the bridges and tunnels across the Huangpu river during rush hours.
The city has also seen an explosion in car ownership, with over 1 million car owners in 2006, and private car ownership has doubled in two years. The increased traffic levels contributed to rising levels of atmospheric pollution. Now the city of Shanghai has begun to tackle some of the environmental problems that could threaten its future growth.
Building new towns
Despite its size, Shanghai is still much more densely populated than Western cities, with four times more people per square kilometre than New York. And according to Michael Kwok, head of the architectural consultants Arup in Shanghai, there is very little land left to build on in the central city, after a decade of rapid development. So Shanghai's planners want to limit population growth in the centre by building satellite towns in the outskirts.
Like the UK's New Towns, constructed not long after World War Two to disperse population out of London's most overcrowded districts, the idea is to provide cheaper housing and jobs to attract people to leave congested areas.
Under Shanghai's "One City - Nine Towns" plan, Shanghai is planning nine new cities which will eventually house 500,000 people each. Six of the cities are themed to look like European cities, including the UK, Germany, Italy, Spain, the Netherlands and Sweden. Thamestown, which opened in October 2006, has themed pubs and Tudor-looking architecture concealing high-rise blocks. But critics say that so far, most of the housing built in such towns is out of reach of ordinary citizens. And they argue that the cities have so far not created enough jobs to prevent most residents from commuting into Shanghai, adding to transportation pressures.
Discouraging car ownership
Shanghai has made it expensive to own a car in the city. The city sets a strict limit on the number of licences it will issue for private car ownership - currently around 80,000 per year - and then auctions them off. With the high demand for cars, the current cost of getting a car license in Shanghai is over 40,000 RMB ($5,500; £2,750).
However, a significant factor in Shanghai is the use of cars - and minivans - by private businesses. Over half of all cars in Shanghai are owned by companies - who are less sensitive to financial constraints.
Investment in public transport
(The modern metro carries 1.8 million a day) According to Professor Chen of Tongji University School of Transportation Engineering, the city is now investing heavily in public transport. Since the mid-1990s, it has built an extensive metro system, with five lines, now used by 1.8 million people per day, and it is now planning six new lines. If it carries out all its plans, the length of the system will exceed London's, the world's biggest.
Buses and the poor
Overall, one-quarter of journeys in Shanghai are by public transport, and the city would like to increase that to 30% by 2010. According to Professor Chen, that will mean boosting the numbers who ride the buses as well. Shanghai has more than 1,000 bus routes, run by a variety of private bus companies, but the system of interchanges between lines is confusing and expensive. She has convinced the city that it should make all transfers free in order to encourage more people to ride the system.
Bicycles and scooters
Despite the spread of car ownership, two-thirds of private journeys in Shanghai are by two-wheeled vehicles such as bicycles and scooters. The city has already banned larger motorbikes, and has introduced restrictions on bikes on the many commuter highways in the city. But it is also building 180km of dedicated bike lanes, especially in newly built areas like Pudong, where bicycles will be segregated from scooters.
Affluence and growth
Shanghai has had some success in tackling its environmental issues. One fact has been a strong planning system, coupled with the fact that the government owns all the land. This has allowed the rapid redevelopment of the city and its infrastructure - as well as generating money to pay for big infrastructure projects.
Air quality has improved with unacceptable days dropping from 20% to 10% in the past five years. But water pollution, is worse, as the rapid growth of industry in the Shanghai region, upstream of the city, has made it harder to keep the city's main water source, the Yangtze River, clean.
Human cost
The city's speed at developing its infrastructure has also come with a human cost, with millions of people displaced for public and private building projects. According to Michael Kwok, in the early days of Shanghai's development it was relatively easy to relocate people to outlying areas, but now people are demanding more compensation.
More broadly, Shanghai is the still the embodiment of China's economic dream of living in an affluent society on a Western scale. Those aspirations - for more land and housing, as well as more consumer durables like cars and air conditioners - are likely to put further pressure on Shanghai's environment in the future.
This is part of a series on how globalisation is changing China's largest city, Shanghai. Further articles will explore the issue of migrant labour and look at plans for an eco-city.
By Steve Schifferes
Shanghai has been transformed into a global city - but its rapid growth has produced pollution, traffic jams and overcrowding. In becoming one of the centres of the world economy, Shanghai has grown faster than almost any other global city in the past 15 years. The population increased from 13.5 million to 21.5 million as migrant labourers flooded in from the surrounding countryside, and the standard of living rose even faster, with per capita income now at $7,000, the highest in China.
The physical size of the city increased sixfold, from just 100 sq km to 680 sq km, as people sought more space and the city government rushed to develop nearby areas, such as Pudong. Three ring roads and six motorways now criss-cross the city, and gridlock grips the bridges and tunnels across the Huangpu river during rush hours.
The city has also seen an explosion in car ownership, with over 1 million car owners in 2006, and private car ownership has doubled in two years. The increased traffic levels contributed to rising levels of atmospheric pollution. Now the city of Shanghai has begun to tackle some of the environmental problems that could threaten its future growth.
Building new towns
Despite its size, Shanghai is still much more densely populated than Western cities, with four times more people per square kilometre than New York. And according to Michael Kwok, head of the architectural consultants Arup in Shanghai, there is very little land left to build on in the central city, after a decade of rapid development. So Shanghai's planners want to limit population growth in the centre by building satellite towns in the outskirts.
Like the UK's New Towns, constructed not long after World War Two to disperse population out of London's most overcrowded districts, the idea is to provide cheaper housing and jobs to attract people to leave congested areas.
Under Shanghai's "One City - Nine Towns" plan, Shanghai is planning nine new cities which will eventually house 500,000 people each. Six of the cities are themed to look like European cities, including the UK, Germany, Italy, Spain, the Netherlands and Sweden. Thamestown, which opened in October 2006, has themed pubs and Tudor-looking architecture concealing high-rise blocks. But critics say that so far, most of the housing built in such towns is out of reach of ordinary citizens. And they argue that the cities have so far not created enough jobs to prevent most residents from commuting into Shanghai, adding to transportation pressures.
Discouraging car ownership
Shanghai has made it expensive to own a car in the city. The city sets a strict limit on the number of licences it will issue for private car ownership - currently around 80,000 per year - and then auctions them off. With the high demand for cars, the current cost of getting a car license in Shanghai is over 40,000 RMB ($5,500; £2,750).
However, a significant factor in Shanghai is the use of cars - and minivans - by private businesses. Over half of all cars in Shanghai are owned by companies - who are less sensitive to financial constraints.
Investment in public transport
(The modern metro carries 1.8 million a day) According to Professor Chen of Tongji University School of Transportation Engineering, the city is now investing heavily in public transport. Since the mid-1990s, it has built an extensive metro system, with five lines, now used by 1.8 million people per day, and it is now planning six new lines. If it carries out all its plans, the length of the system will exceed London's, the world's biggest.
Buses and the poor
Overall, one-quarter of journeys in Shanghai are by public transport, and the city would like to increase that to 30% by 2010. According to Professor Chen, that will mean boosting the numbers who ride the buses as well. Shanghai has more than 1,000 bus routes, run by a variety of private bus companies, but the system of interchanges between lines is confusing and expensive. She has convinced the city that it should make all transfers free in order to encourage more people to ride the system.
Bicycles and scooters
Despite the spread of car ownership, two-thirds of private journeys in Shanghai are by two-wheeled vehicles such as bicycles and scooters. The city has already banned larger motorbikes, and has introduced restrictions on bikes on the many commuter highways in the city. But it is also building 180km of dedicated bike lanes, especially in newly built areas like Pudong, where bicycles will be segregated from scooters.
Affluence and growth
Shanghai has had some success in tackling its environmental issues. One fact has been a strong planning system, coupled with the fact that the government owns all the land. This has allowed the rapid redevelopment of the city and its infrastructure - as well as generating money to pay for big infrastructure projects.
Air quality has improved with unacceptable days dropping from 20% to 10% in the past five years. But water pollution, is worse, as the rapid growth of industry in the Shanghai region, upstream of the city, has made it harder to keep the city's main water source, the Yangtze River, clean.
Human cost
The city's speed at developing its infrastructure has also come with a human cost, with millions of people displaced for public and private building projects. According to Michael Kwok, in the early days of Shanghai's development it was relatively easy to relocate people to outlying areas, but now people are demanding more compensation.
More broadly, Shanghai is the still the embodiment of China's economic dream of living in an affluent society on a Western scale. Those aspirations - for more land and housing, as well as more consumer durables like cars and air conditioners - are likely to put further pressure on Shanghai's environment in the future.
This is part of a series on how globalisation is changing China's largest city, Shanghai. Further articles will explore the issue of migrant labour and look at plans for an eco-city.
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