With the end of the (Western) year in sight, Chinese auto makers look in their books, roll their eyes, and sigh. One by one they come to the same conclusion: this year’s targets are toast. Bu hao, no good. According to a tally by Gasgoo, five Chinese auto makers have officially written off their old targets and revised them way down: Changan Mazda (-50 percent); Dongfeng Yueda Kia (-20 percent); Dongfeng Peugeot (-31 percent); Dongfeng Citroen (-27percent); FAW-VW’s Magotan (-22 percent). This doesn’t mean that their year-on-year sales will be down by that much. They probably started the year with optimistic growth rates. Which are now coming home to rust. Other companies don’t want to throw in the towel yet, or they say it’s too early to call. But ending October, most of China’s big auto makers were way off course.
The worst off: Changan Ford Mazda. The automaker had fulfilled their plan by just 56 percent. Fugedaboutit. The best: Donfeng Nissan, fulfilling 81 percent of plan. Mmmmaybe. SAIC-GM-Wuling: 78 percent. Nah. FAW-VW: 71 percent. Nein. Shanghai VW 68.5 percent. Oh nein. Shanghai GM: 61 percent. Don’t even think it.
Faceless experts cited by Gasgoo voice the not all too surprising opinion that with those uninspiring October results, it’s impossible for the carmakers to achieve their full-year targets. A slight sales growth compared to 2007 is as good as it’s going to get. Others may just post flat sales. Or, unheard of in China, numbers going down. So much for the Chinese market bailing out the big boys.
Chinese market could not bail out big boys. Current Chinese monetary laws require reinvestment of profits in China. Investor can take out of the country the value of investment, not the profit.
That is why great Chinese run on Buicks could not be seen on GM books. Also, foreign interest can not own 100% of Chinese production facility. That is why every one is having Chinese “partner” – a designated commissar who shares the fruit of his labor with party. BTW, you read about execution of corrupt officials – those who did not share properly.
“Current Chinese monetary laws require reinvestment of profits in China.”
Perhaps a similar restriction can be built into any government bailout of the 2.8. All future profits would be required to be reinvested in the US.
@autonut: I’ve told you twice that “investor can take out of the country the value of the investment, not the profit” is wrong. Dead wrong.
I already told you to google wfoe.
Since this didn’t help, I give you a direct link:
http://www.lehmanlaw.com/resource-centre/faqs/taxation/what-vehicles-can-be-used-for-profit-repatriation.html
Both Wholly Foreign Owned Enterprises (WFOE) and Equity Joint Ventures (EJV)can repatriate their profits at their heart’s content. As a matter of fact, this is what GM currently is doing (TTAC wrote about it) and this is what makes the balance sheets of the likes of VW and Toyota look much better than what they were without China. The Buicks are on GM’s books. Every penny GM (et al) make in China are on their books.
Should you want to delve deeper into that subject (I doubt it) then I recommend looking at the sentence “Another option for repatriating profits is using an offshore company to incorporate the WFOE or JV.” Without saying it, this means Hong Kong. One of the world’s last tax havens. You wouldn’t believe how many Chinese JVs are actually owned by HK holding companies, where the tax rate is 17% or less.
Your “designated commissar” drivel is from the stone age. Things change. Have changed long ago. You need to come here and have a look.
Regarding the execution of corrupt officials: I’m not a fan of the death penalty. But as long as it’s on the books, maybe it should be applied to corrupt officials in other countries also. I could name you some candidates.
Bartel, I do not live in China, but I was in China last year. My company was doing business and problems I described actual reasons why we pulled out. I concur that, commissars don’t wear Mao’s blues, but behind facade things are mostly the same.
The link you’ve send contradicts itself: if you can repatriate profits you don’t need another vehicle (JV in HK) to do it. I repeat, you can’t legally own manufacturing facility in China without “local” partner and foreign interest can not own more then 49.9%.
Actually, if you remember, the numbers of sold cars posted by GM on books was disputed, since GM does not own 51% of JV (49.9%), and that was the reason Toyota climbed to #1 spot last year.
Don’t forget, you’ve send link from Chinese Law firm which profits from foreign investment. I am naive and don’t believe 90% of what lawyers write in US, now you are suggesting to convert to Chinese lawyer doctrine?
P.S. “round eyes” models in the picture look good.
Look, I lived here for 4 years. I run two companies. I can transfer money in and out at the click of a mouse. None of my businesses are JVs. Actually, JVs are a going out of style. In existing JVs, foreigners buy out the Chinese, Chinese buy out the foreigners. I can open my own manufacturing facility tomorrow, no JV needed. As much as you may repeat it, your info is wrong. As is most in your last post.
It’s 2008, take off those 1978 glasses, China looks different now days. Been to the new Beijing airport? It’s a world class airport that any major city would be proud to have, and it wasn’t built by peasant slaves with hand tools, ok?
Yes, technically, China can still nationalize any damn thing it wants to inside its borders. And, yes their government has some of the most ruthless, selfish, bastages around. But even a two digit IQ bureaucrat knows it’s a dumb thing to kill the goose in order to get the egg a day sooner.
I’m sick of hearing these stereotypes about China on TTAC, where I see so much other smart commentary. But when it comes to China, it’s completely over taken by a “OMAGAWD they are commies” mentality.
Who cares about their targets? Exactly how do the sales numbers compare to those from last year?
I’ll let the others argue the finer points of running a business in China.
I just wanted to say thanks for the pic. I’m really getting tired of the ugly old men who shouldn’t be running a lemonaid stand let alone a major auto manufacturer, so this was a welcome respite.
@pf21: As of October, actual sales were still 11 percent above prior year. However, sales are slowing significantly. October sales were only 3.3 percent above October 2007. The last three months of the year are a big selling season in China. Guesstimates for end-of-year are anywhere between 5 and 8 percent growth. Next year could be ugly.
Once China recovers from the shock (and they are already pushing the stimulus pedal) their car market is set to boom. As said many times: USA has 750 cars per 1000 pop. China has maybe 20 real CARS per 1000 pop (you’ll see different numbers, all confused.)
@zoomzoom: That’s one of the many reasons that after my first visit to China, I decided to stay.