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As global auto giants respond to the fast-growing Chinese market with bold investment bets, they should remember that foreign investors' profits would be limited for years, analysts warned Wednesday.
And while China's auto sector will probably grow, there is a risk of fragmentation and cutthroat competition, according to participants in the Asia Pacific Automotive Industry Roundtable in Shanghai.
"China will easily be the biggest market in the world one day," said Graeme Maxton, managing director of Autopolis Asia, an automotive consulting company.
But Maxton added, "In some ways, the industry is blinded to the realities by what it sees as the potential."
This year, annual sales of passenger cars on the mainland are expected to rise nearly 40 percent to 1 mil-lion units for the first time, making China's market the fastest-growing in the world.
"China appears to be continuing in its path of solid growth in vehicle volume, while the rest of the world is facing a stagnant market," said Stefano Aversa of the U.S.-based consulting firm AT Kearney.
Not every factor is positive, though, and the Chinese automotive industry must solve problems of overcapacity and corporate governance, Aversa said.
Rodney O'Neal, executive vice president of Delphi Automotive Systems Corp., the world's largest supplier of automotive parts, sounded a rare hopeful note.
He said an overhaul of the domestic auto industry, which is crowded with more than 120 carmakers, will benefit the Chinese market and foreign investors.
China's three largest automakers - First Auto-motive Works, Dongfeng Motor Corp. and Shanghai Automotive Industry Corp. - have central-government backing for a program of merging and restructuring the small players.
"China is a developing market, and its auto industry will be open as a result of its entry into the World Trade Organization," O'Neal said.
"The Asia-Pacific region will be the most important growth area for our business in the future, and China is a key part of the region."
He attributed the dynamic growth of Chinese market to improvement of infrastructure, economic growth and a rise in buying power.
The U.S. company, which came to the mainland seven years ago, plans further expansion in the tracks of General Motors, Ford and other foreign giants.
(Shanghai Daily October 24, 2002)
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