Re: [A-List] A Chinese Marxism view: Problems of int'l. strategy fortoday's China

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

The issue of Chinese need for commoditites has been dealt with
repeatedly on this list. I suggest you go to the archive to keep up.
As for Chinese wages rising, yes it will rise but from such a low base
and with such as purchasing power parity gap that it will be a long time
before China loses its labor cost advantage. The wage gap between the US
and China in the auto sector is more the 40 times. That gap is not
expected to close within a decade and perhaps never unless China moves
away from dependence on export for growth. China is selling cars for
$4000 in the Third World markets now.

By KEITH BRADSHER
<http://topics.nytimes.com/top/reference/timestopics/people/b/keith_bradsher/index.html?inline=nyt-per>
Published: February 17, 2006

CHONGQING, China, Feb. 16 — China is pursuing a novel way to catapult
its automaking into a global force: buy one of the world's most
sophisticated engine plants, take it apart, piece by piece, transport it
halfway around the globe and put it back together again at home.

<http://nytimes.com/2006/02/17/business/17auto.html?ei=5094&en=cf3ccfcc52335ac4&hp=&ex=1140238800&adxnnl=1&partner=homepage&adxnnlx=1140188690-hXdDpYKki4Ws5Os4/2MtbQ#secondParagraph>

<>Yin Mingshan, president of the Lifan Group, has become one of China's
most successful and politically connected executives. Lifan plans on
exporting to Europe in 2008 and to the American market in 2009.

In the latest sign of this country's manufacturing ambitions, a major
Chinese company, hand-in-hand with the Communist Party, is bidding to
buy from DaimlerChrysler
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=DCX>
and BMW a car engine plant in Brazil.

Because the plant is so sophisticated, it is far more feasible for the
Chinese carmaker, the Lifan Group, to go through such an effort to move
it 8,300 miles, rather than to develop its own technology in this
industrial hub in western China, the company's president said Thursday.

If the purchase succeeds — and it is early in the process — China could
leapfrog competitors like South Korea to catch up with Japan, Germany
and the United States in selling some of the most fuel-efficient yet
comfortable cars on the market, like the Honda Civic
<http://edmunds.nytimes.com/new/2005/honda/civic/100469590/review.html?inline=nyt-classifier>
or the Toyota Corolla
<http://edmunds.nytimes.com/new/2005/toyota/corolla/100394564/review.html?inline=nyt-classifier>.


The failure of China to develop its own version of sophisticated,
reliable engines has been the biggest technical obstacle facing Chinese
automakers as they modernize and prepare to export to the United States
and Europe, Western auto executives and analysts said.

Buying that technology from overseas would not only remove this obstacle
but would also plant China's auto industry solidly in a position to
produce roomy cars that can also get more than 30 miles to the gallon.

The engine plant is one of the most famous and unusual in the auto
industry. Built in southern Brazil in the late 1990's at a cost of $500
million by a 50-50 joint venture of Chrysler and BMW, the Campo Largo
factory combines the latest American and German technology to produce
the 1.6-liter, 16-valve Tritec engine.

Lifan says it is the sole bidder for the factory and wants to bring it
here to start producing engines in 2008. Though China's Communist Party
is actively behind the effort, the bold moves are being driven by one of
China's remarkable entrepreneurs: Yin Mingshan has become one of China's
most successful and most politically connected corporate executives,
with a hardscrabble upbringing that included spending 22 years of his
earlier life in Communist labor camps and prison as punishment for his
political dissent.

Now the enormously wealthy and prominent president and principal owner
of Lifan, Mr. Yin has his sights on exporting to Europe in 2008 and the
American market in 2009.

Trevor Hale, a DaimlerChrysler spokesman, and Marc Hassinger, a
Bayerische Motoren Werke spokesman, each said separately that their
companies were assessing their options for when their joint venture
legal agreement expires at the end of next year, but that it was
premature to provide details.

The Tritec engine is one of the most technologically sophisticated and
fuel-efficient car engines in the world, said Yale Zhang, an analyst in
the Shanghai office of CSM Worldwide, a big auto consulting company
based in the Detroit suburbs. Mr. Yin said he wanted to rebuild the
factory on vacant land next door to his car assembly plant here. His
goal is to understand the technology thoroughly so that he can supply
engines not only for Lifan but also for other Chinese automakers.

In an interview on Thursday in a glass-walled conference room
overlooking his recently completed car assembly plant, Mr. Yin, 67, said
that while Lifan would pay for the factory, the Chinese negotiating team
is being led not by a Lifan official but by a senior Chinese Communist
party official, Huang Zhendong.

Mr. Huang, 65, is a member of the party's powerful Central Committee and
led the party's Chongqing branch until December, when he became a senior
member of the influential legal committee of the National People's
Congress in Beijing.

Mr. Yin's deputy, Yang Jong, Lifan's chief executive, has accompanied
Mr. Huang on a visit to Brazil. "Everyone knows you need government
support — the government may provide land," Mr. Yin said.

Any attempt to buy a comparable factory in the United States might be
blocked. But Mr. Yin said that Brazil did not have comparable
restrictions on the export of high technology.

Lifan, already one of the world's largest motorcycle manufacturers with
sales in 112 countries, is about to start exporting its remarkably
well-built, $9,700 midsize sedans to developing countries in Asia, the
Mideast and the Caribbean. But several more years of work is needed
before the company is ready to compete in industrialized countries, Mr.
Yin said.

"Chairman Mao taught us: if you can win then fight the war, if you
cannot win, then run away," he said. "I want to train my army in these
smaller markets, and when we are ready, we will move on to bigger markets."

Accustomed to producing lightweight, fuel-sipping cars for
cost-conscious Chinese families, Chinese automakers want to use that
expertise as a competitive advantage around the world while oil prices
stay high. Geely, a separate Chinese carmaker that surprised American
and European manufacturers by announcing plans at Detroit's auto show
last month to enter the American market in 2007, was emphasizing gas
mileage even before oil prices surged in the last two years.

When crude oil prices were much lower than they are today, Geely
switched from an inexpensive electronic engine control and fuel
injections system made by Denso of Japan to a more expensive but more
fuel-efficient model made by Bosch of Germany, said Lawrence Ang, an
executive director of Geely.

Multinational automakers have struggled in China to keep up with the
public's growing appetite for fuel-efficient models. Chinese carmakers
like Chery and Geely captured a quarter of the Chinese market last year,
up from less than 10 percent just two years earlier, said Michael Dunne,
the president of Automotive Resources Asia, a consulting firm.

"Why the spurt? Small cars powered by gas-sipping engines that start at
$4,000," Mr. Dunne said.

Raymond Bierzynski, the president of the Pan Asia Technical Automotive
Center of General Motors
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=GBM>
in Shanghai, said that gasoline costs were more important to consumers
in China than elsewhere because these costs represent a higher share of
the low household incomes in China. G.M. sells its Buick Excelle compact
sedan with special, low-rolling-resistance tires in China, which it does
not do in any other market and which increases gas mileage by up to 2
percent, he said.

Chrysler and BMW began construction of the Campo Largo factory in April
1998, a month before Daimler-Benz began a takeover of Chrysler that it
completed in November of that year. Heralded in the automotive press at
the time as arguably the most advanced engine factory ever built, the
factory had already become a corporate orphan by the time production
began in September, 1999.

The Brazilian auto market had entered a slump by then and Daimler
already had ample engine manufacturing capacity of its own and was
uncomfortable collaborating with its longtime German rival, BMW.

BMW installs its half of the engines from the factory in its
award-winning Mini Coopers. But it has already announced that future
engines for these cars will come from a factory in France that is owned
and operated by PSA Peugeot
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=PEUGY>
Citroën.

Chrysler used to put the Brazilian-made engines in its Neon compact cars
and the PT Cruiser. But it is now selling its half of the engines to
Lifan and to Chery Automotive and a Chinese joint venture by Mazda.

Mr. Yin and spokesmen from DaimlerChrysler and BMW declined to comment
on the price under negotiation for the factory.

Lifan made its debut into the car market just last month with the
introduction of the Lifan 520 sedan, assembled in the company's
sprawling new assembly plant here, where the conveyor belt is bright red
and the giant clamps holding unfinished cars are bright yellow — the
colors of China's flag. Lifan models itself on Honda
<http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=HMC>,
another motorcycle manufacturer that entered the car market, and shares
Honda's emphasis on efficient, energy-saving designs.

Lifan has also copied Honda's focus on quality. Huge characters of Mr.
Yin's sayings adorn a Lifan motorcycle engine factory inside and out; an
illuminated board over the assembly line reads: "Whoever wrecks Lifan's
brand, Lifan will wreck that person's rice bowl."

A test drive here of the Lifan 520 sedan showed it to have an
impressively sturdy body with no rattles or wiggles even when traveling
over very rough pavement — although this is no guarantee of long-term
reliability. There is ample headroom in the front seats and even the
rear seats for a 6-foot-4 occupant.

The $9,700 price tag includes leather seats, dual air bags, a huge trunk
and a DVD system with a video screen facing the front passenger — a
combination that could cost twice as much in a comparably equipped
midsize sedan in the United States.

Wages of less than $100 a month have helped control the cost. The
assembly plant is better organized than many Chinese factories, although
it still maintains large inventories of parts and materials awaiting
assembly, incurring interest charges to finance these supplies.

Mr. Yin has no doubts that China can also compete with the United States.

"Americans work 5 days a week, we in China work 7 days," he said.
"Americans work 8 hours a day, and we work 16 hours." End

Notice Mr. Yin quotes Mao, despite having been imprisoned for 22 years
for being a revisionist.

Henry C.K. Liu





Bethuel Lamola wrote:

> "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> wrote:
>
>
>
>     Henry Liu wrote:
>
>     "Within 10 years, Chinese made cars will sell for 50% less than
>     Japanese cars. This will benefit Third World consumers."
>
>
>     I wonder if Chinese labour would still be as cheap as it is now- a
>     huge factor contributing to China's competitiveness. Rising living
>     standards( and inevitable labour reform) would surely lead to
>     increased labour costs. Am I losing it ?
>     While I agree partly with Henry on China's need to exert influence
>     in the South to maybe counter the USA's influence, I suspect that
>     China is also looking at securing long-term access to commodities.
>     Long-term access to commodities is strategically necessary for
>     China as it is perceived to be important for America.
>
> Bethuel
>
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