Beijing-based automaker pressing ahead with overseas expansion plan amid weak domestic demand, reports Zhong Nan.

During the past two decades, foreign automakers have injected billions into China with an eye on the nation's huge growth opportunities. But things have changed drastically in the past few years with Chinese automakers fast catching up with them in the global markets with inexpensive, easily serviceable products.

Beijing Automotive Group, one of the largest Chinese automakers in terms of sales, is planning to build a large-scale joint venture plant in the Middle East and a factory in Mexico to produce passenger and commercial vehicles over the next three years to compete with established global rivals like Toyota Motor Corp and Ford Motor Co.

Xu Heyi, president of BAIC, said Chinese vehicle manufacturers, who used to rely on gaining easy money through joint venture brands, are shifting focus to overseas markets as growth in the domestic markets has more or less bottomed out.

China's 15 major automakers including Chongqing Lifan Group and Great Wall Motors Group have established 58 overseas plants and till date produced more than 200,000 vehicles in different regional markets, data from the Ministry of Commerce show.

They have also created an $18 billion worth market for export of auto parts from China.

Under the plan, BAIC, which has subsidiary joint-venture companies including BAIC Hyundai Motor Co Ltd and Beijing Benz Automotive Co Ltd, will adopt the original equipment manufacturer business model in its Mexico factory initially and try to manage its investment to a certain amount to prevent possible political uncertainty.

"Continued foreign and domestic investments in infrastructure development, such as roads and town expansion, will be key for sustained economic growth in Central America and the Middle East during the next decade," said Xu.

Buoyed by the surging demand for new vehicles in Africa, BAIC established a minibus assembly plant, that employs more than 500 people, in Springs, a South African town in 2013. Xu said the company will make more investment in its South Africa production base and the assembly plant in Nairobi, Kenya to produce pickups and light trucks.

The factories in Africa will help the company move closer to the market and avoid paying duties of up to 25 percent. Sales from BAIC's minibus factory are around 250 units per month in South Africa.

Dong Haiyang, president of BAIC International, said that as is the case in most African countries, where new cars are beyond the reach of most people, secondhand vehicles command a large share of the market, with the proportion about 70 percent in most Sub-Sahara African countries such as Ghana, Ethiopia, Angola and Kenya.

The disadvantage of such a big secondhand market is that the brand life of some cars can be as long as 20 years, and anyone with one of the old models can face problems in obtaining spare parts.

For example, Japanese carmakers including Toyota and Nissan Motor Co, the main source for secondhand vehicles in Africa, have stopped producing spare parts for some models from the 1990s.

"Consumer trends there indicate that buyers go for vehicles they know they can buy spare parts for in the nearest town," said Dong.

"This certainly is a new growth market for us, because we can provide spare parts in sufficient quantities and technical services on time through locally built warehouses and our established logistics and services network. We might be young in this market, but we are quick learners and have gradually moved the industrial chain to this market."

BAIC shipped 45,000 vehicles to various global destinations in the first half of this year, up 31.3 percent from the same period a year earlier. Brazil, Iran, Russia, Indonesia, Nigeria and Angola were its main export markets.

The Chinese company has already built a number of plants, research and development centers in India, Pakistan, Russia, Italy, the Netherlands and the United States, as well as expanded its footprint in various markets along the Belt and Road Initiative routes.

The Silk Road Economic Belt and the 21st Century Maritime Silk Road initiatives were proposed by President Xi Jinping in 2013, with the purpose of rejuvenating the two ancient trading routes and further opening up markets for Chinese companies.

Over the long term, BAIC plans to build seven regional centers in 30 countries. It expects an annual output of 400,000 cars and revenue of 50 billion yuan ($8 billion).

To further upgrade its service level in foreign markets, BAIC's General Manager Zhang Xiyong said the company will not entirely outsource after-sales services to local distributors, but will be involved in specific projects, helping recruit workers, building plants and handling logistics issues.

Eager to grab more market share, BAIC also established an international company and launched its global expansion plan in June, in the footsteps of two major domestic auto groups, FAW Group Corp and Dongfeng Motor Corp, which had already founded their overseas branches.

The new offshore company, established in Hong Kong, is not only a channel for exports but also a means of finding more overseas resources, especially talent, and for mergers and acquisitions. It will carry out financing in the local currencies of the destination markets. The money will be used mainly for overseas investments and acquisitions.

Zhang said the company is conducting research on two European auto brands, which could be springboards for its expansion in Europe.

As a major auto-producing region, Europe has a few brands that are well known yet not operating very well. After Geely Holding Group Co's acquisition of Volvo Car Corp and SAIC's acquisition of MG Rover Group, Chinese automakers have become white knights of sorts for struggling European brands.

"Under such circumstances, they can count on these cash-flush Chinese companies to save them from unhappy financial results," said He Jingtong, a professor of investment at Nankai University in Tianjin.

Contact the writer at zhongnan@chinadaily.com.cn

(China Daily USA 08/04/2015 page13)