China’s motor industry: The coming crash

Courtesy of The Economist.

For carmakers, the profits bonanza from China will not last

“THIS is one of the most advanced and sustainable car factories in the world.” So declares Karsten Engel, chief executive of BMW China, as he greets visitors to his firm’s newish manufacturing facility in the grim north-eastern city of Shenyang. The plant, run by a joint venture with a local firm called Brilliance, is indeed spotless and efficient, with robots and humans together producing nearly 40 cars each hour. China is the largest market in the world for the firm’s big 5 Series and 7 Series models, and source of perhaps half of its global profits in recent years. Unsurprising, then, that the firm is hoping to double the number of models built locally.

The bosses of many big foreign car firms were in China this week for the Shanghai Auto Show, and they too offered a pretty rosy view of the Middle Kingdom. China has overtaken America as the world’s largest car market, and it has contributed between a third and a half of the global profits of many big automobile manufacturers in recent years. Like BMW, other foreign firms are also betting heavily that the good times will continue by expanding production capacity in the joint ventures that the Chinese government requires them to form with domestic firms. Jochen Siebert of JSC Automotive, a consulting firm, estimates that the joint ventures will open $12 billion-worth of new factories in China this year and next.

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