China:Gentlemen, kill your engines(huge overcapacity may lead to world-wide glut of cars)

Asia Times ^ | 10/02/04 | Jamil Anderlini

[TigerLikesRooster]

A harbinger of popping Chinese bubble. Auto companies outdoing each other to build their capacity way above existing demand. This kind of things always end badly.

[TigerLikesRooster]

Ping!

[Syntyr]

Very Badly... Even in a tightly regulated market like China the "market" has a way of infuencing things...

[spoiler2]

"A harbinger of popping Chinese bubble."

This might simply be the popping of our own (western)Chinese bubble. As automakers from around the world rushed to fill the expected orders for import cars, China is showing that it would rather produce cars for it's own population.

They can allow the glut to occur, forcing a variety of auto companies to fade, then bail out the more prize facilities, continuing on with their own brands.

More and more Western businesses are discovering the true depths of Chinese inscrutability!

[winodog]

Every week or more often I get to say I am amazed that this or that is happening. Common sense told me that all these american manufacturers are gonna get screwed in china. After china has all the plants and know how they will make up a excuse to toss out the americans and they will cheat on copyrights and take over the industry.

I hate to say it and hate to see it but they deserve whatever happens to them.

[TigerLikesRooster]

Re #4

It is true that China wants to build their "own" industry, not more subsidiaries of multinationals. However, if they use this overcapacity to wean out Western companies, their collateral damage would be too high. They will have an economic bust at least for a while, which they may not be able to escape. Remember Tienanmen Uprising? That erupted because China is in a recession at the time. Imagine what will happen if Chinese economy really tanks, as S. Korea or Japan did. Things can get really ugly fast.

[SauronOfMordor]

The current CEO's are counting on being retired and living on the proceeds of their stock options before the excrement hits the ventilator

[winodog]

Good point.

[TigerLikesRooster]

Re #6

Correction:

It is true that China wants to build their "own" industry, not more mere subsidiaries of multinationals. However, if they use this overcapacity to wean out Western companies, their collateral damage would be huge. They will have an economic bust at least for a while, which they may not be able to escape survive. Remember Tienanmen Uprising? That erupted because China is was in a recession at the time. Imagine what will happen if Chinese economy really tanks, as S. Korea or Japan did. Things can get really ugly fast.

[glorgau]

Things can get really ugly fast.

And then the guys in charge in Peking say "So what? A few million dead people here or there don't signify".

[WilliamofCarmichael]

foreign carmakers are required to enter into joint ventures with local, mostly state-owned companies

Required? State-owned?

"Free traders" meekly accept anything thrown at them by their Chi-com partners -- but when one U.S. citizen raises a question about transferring technology, capital, and jobs the "free traders" start screaming "protectionist!" "Doom and gloomer!" "Government interference!" "Kerry supporter!" "Socialist!"

Go figure.

[SengirV]

I have to question some of your thinking there. The vast majority of protesters in TS were students. Students are the least likely to give a rats ass about recessions. Maybe you heard of theat little Anti-USSR stuff going on in Easern Europe at the time?

Also, China has historically been in it for the long haul. As others have pointed out, if they can get the expertise and the facilities for free(heck, even making money along the way) and suffer a slowdown for a couple years as the economies of the world dive, they would be happy. Because they have a HUGE built in market and then they would swoop in to capture a big % of the world market during the next upswing.

[boris]

" Gridlocked traffic, unbearable air pollution and skyrocketing oil prices don't make the best advertisement for a new VW Polo."

But auto sales crash in China might just depress the price of oil, eh?

[DarkWaters]

Remember Tienanmen Uprising

Remember what happened once the media was thrown out on their butts? What ever uprising there will be will be short lived, Beijing has no desire to see things grow out of control and wreck their plans. Their economy is expendable, so our their people, and so our foreign investors, but not their long range plans. They have pretty much all they need for manufacturing a more or less modern military. Any spare capacity that the fools of western companies happen to supply them with prior to closing the business down is just par for the course. That is probably why they haven't stopped the glut that is accumulating, the more rope the west gives them, the more people they can hang.

Also, Chines debt to GDP is 50% plus, this is totally unsustainable and the Chinese gov knows this, yet they allow it to continue to accumulate as much manufacturing capacity and capability. The leaders there are very shrewd for allowing this.

[Dr. Marten]

it's funny that you should ping me to this because the other day I was sitting in the C-Straits caffe and I was talking with a local gentleman about the number of cars in China and the fact that I have yet to see a junkyard anywhere for retired vehicles. However, he was quick to point out that the Chinese people have not been able to own their own cars for as long as Americans have and therefore the government has been able to adequately deal with the number of retired vehicles generated through offical usage. As it is now, people are not accustomed to the maintenance that usually goes with owning a personal vehicle and without an adequate infrastructure to support the service needed, there will be more junked vehicles to deal with in 10 years than they will probably be able to handle.

Not sure if I agree with him, but it certainly makes good sense.

[Dr. Marten]

Exactly!

The only reason foreign owned companies are required to undergo "joing-ventures" is that the Chinese or state owned company can learn to copy the technology used to produce the prodcute. The venture will flow smoothly until then and after that the Chinese will pull out the carpet and go into business for themselves.

[VeniVidiVici]

Didn't we have an article on FR recently that said China had now become the #1 nation for investors?


LOL!!!

[Wingy]

Well, when I was last there, China didn't have enough roads for bicycle traffic. Believe me, it's a sight to see 20,000 people on two-wheelers coming toward you on the road. I can't imagine what kind of gridlock would ensue if those same folks were in Impalas. Rush hour wouldn't end until Monday. (Monday was the "weekend" in Nanjing).

So this "slowdown" may be just a delaying tactic until the government can lay down a few hundred thousand miles of pavement.

Then they will steal the technology and make cars. (And billions).

[hedgetrimmer]

Its going to end badly for the US taxpayer, because if the company is an American one, and fails due to foreign government policies, they are fully insured through OPIC and you and me, to recoup their losses.

[hedgetrimmer]

"The Chinese are much more prone to do business in a way that today Europeans and Americans do not accept - paying bribes and all kinds of bonuses under the table,"
--oil industry analyst Gal Luft

except maybe the free traders?