China City Eyes Cars to Drive its Economic Future

April 24, 2012
Wuhan attracts several major automakers, including Ford, GM and Honda.

As China seeks to spread its economic boom from the rich coast to its vast interior officials say the central city of Wuhan plans to double its car-making capacity to almost 2 million a year.

The capital of landlocked Hubei province already hosts separate joint ventures set up by PSA Peugeot Citroen (IW 1000/43) and Honda Motor Co. (IW 1000/23) with China's Dongfeng Motor, as well as many auto parts manufacturers such as Valeo SA (IW 1000/308) and Faurecia (IW 1000/212).

The car industry has traditionally been located in eastern and coastal regions such as Shanghai or the southern province of Guangdong.

But Wuhan aims to take advantage of a central government push to develop poorer and more remote central and western regions -- and is attracting carmakers eyeing potential growth in inland markets that have yet to rev up.

Wuhan, a sprawling metropolis of about 10 million people, has earmarked 77 square miles along both banks of the Yangtze River on the city's outskirts for an industrial zone to develop its car industry.

Already 3,000 companies, many of them foreign-owned, have set up operations in the zone, and more than two-thirds are in the auto sector, said Wuhan government official Zhang Xiaowu.

"Our aim is to double production in the next three years," said Zhang, deputy director of the government office in charge of promoting investments in the economic zone. "We will easily double the number of cars produced in the zone which could reach 1.8 million for passenger vehicles alone," he said, adding Honda was due to open a new facility in the zone in two months' time.

Peugeot Citroen is currently building its third factory in the area and is looking to nearly double its total production to 750,000 cars annually in the next few years. All the cars made by the French firm's joint venture are assembled in Wuhan.

General Motors Co. (IW 500/5), China's market leader with 2.5 million vehicles sold last year, has also started building a production facility.

China is now the biggest auto market in the world and, despite a marked growth slowdown last year, carmakers remain optimistic that the Chinese consumer's love of cars will continue to support demand for years to come.

China auto sales grew just 2.5% in 2011, compared to 32% the previous year. The passenger car segment rose 5.2%.

But Klaus Paur, auto analyst with the consultancy IPSOS, said that if disappointing minivan sales were excluded, 2011 growth in all other passenger car sales may have reached 10%.

At any rate, carmakers are undeterred.

"We have set a goal of having a five percent market share by 2015. That would mean selling 850,000 cars out of an estimated 17 million," said Maxime Picat, general manager of Dongfeng Peugeot Citroen, PSA's Chinese joint-venture.

Wuhan is not the only inland city to offer manufacturers lower wages and cheaper real estate compared to more developed auto-producing areas.

Ford Motor Co. (IW 500/6) has said it will double the capacity of its plant in the southwestern Chongqing region, where it is in a joint venture with Changan Automobile Group (IW 1000/625).

Fiat (IW 1000/81) has also just announced it will start producing its Viaggio sedan in Changsha, a city in Hunan province in central China.

Volkswagen AG (IW 1000/10), already heavily invested in interior regions, has said its next factory will be in the remote western province of Xinjiang.

But the market is becoming increasingly competitive as sales growth sputters.

Japan's Nissan also has a partnership with Dongfeng, and is betting on its Chinese partner's dealership network to conquer more western and southern provinces where the auto market has yet to take off.

"Dongfeng has a strong distribution network in second-tier cities," said Shen Li, director of public relations for the Chinese brand. "The market inland has huge potential."

Copyright Agence France-Presse, 2012

See also:

World's Carmakers Woo China Despite Slowing Sales

Ford's New Plant in China will Double Annual Production

Renault to Produce Electric Cars in China

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