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15 January 2018  •  By: Perry Robb

The ‘Inscrutable’ Chinese Car Marketplace

The staggering growth in the Chinese economy over the past 25 years has been unbelievable for many of us who can still picture Chairman Mao holding his ‘little red book’ – the same time as the ‘Troubles’ were raging in Northern Ireland.

A few years before I retired, I was on a factory trip to Porsche with a number of customers, and at dinner one evening, a senior German Porsche executive told me a story which I found difficult to believe, even if he swore it was true…

He said that when Porsche AG initially decided to ‘set up shop’ in China, it was quite a protracted process and very political, but after several years, it all came together. The logistics were a bit of a nightmare, but they included huge consignments of Porsche parts being flown from Germany to China in specially chartered cargo jumbo jets.

The parts were then stored in Porsche’s massive and secure warehouses for distribution to its dealer network (which was quite small then). Unfortunately, during this time, a significant number of genuine Porsche parts ‘disappeared’, and it transpired that they ended up being copied by a number of Chinese component suppliers. They were copied so well and were being sold so cheaply that the official Chinese Porsche network of dealers bought a substantial amount of their supposedly ‘genuine Porsche Parts’ – not from Porsche at all, but from these local ‘suppliers’.

This is a very worrying thought when you consider the rigorous production standards which Porsche demands from their supply chain, and the potential safety implications on high performance cars where these standards do not apply. Despite huge pressure from Porsche, however, the Chinese dealer network still continued to buy their parts from these suppliers, and the Germans were sure there was major political influence in this decision.

Today, there certainly is not an even playing field if you are a manufacturer and want to sell your cars in China.

For instance, any vehicles which aren’t manufactured in China have a 25% import duty imposed on them. This makes them uncompetitive to say the least, despite the fact that China promised many years ago to become a free trading market economy, and indeed was only admitted into the World Trade Organization because of this promise.

If you are a manufacturer and decided the only way to get into this massive marketplace is to set up a manufacturing base in China, it gets worse. First of all, you need a Chinese business partner and secondly, you have to turn over all your intellectual property rights and technological ‘know-how’ to the Chinese as well.

Surprisingly, most manufacturers were happy enough to do this, and it’s because the Chinese market is just so big. Over the past 10 years, its strong economy has ensured that if there is a slowdown in certain European markets or even the US, then there is every chance the Chinese market will fill that shortfall in sales. Rumour has it that the Chinese plan over the next 10 years and beyond is to start selling their own brand of cars in Europe and the US.  So, keep an eye out for not just the Chinese-owned familiar names like MG and Volvo, but also for others like GAC and Geeley.

‘Inscrutable’ is a word that has been long used to describe the Chinese. According to the dictionary it can mean a number of things: mysterious, incomprehensible, inexplicable, among others. My favourite, however is ‘impenetrable’.

Theresa May and ‘The Donald’ – beware in your negotiations with these boys – they know what day of the week it is!