China's Goal: 3 Million Cars Annually in the New Lianjiang Economic Zone
It's almost impossible to imagine the scale of auto manufacturing in China. We all know that the Chinese auto market has overtaken its American counterpart, but that's just the beginning. The Lianjiang Economic Zone, officially established just last June, points the way forward to a massive ramping up of auto production (including many EVs) that could eventually turn the country into a formidable export market.
Here's a mammoth economic investment project underway in western China, capable of changing the face of global auto production, and hardly anyone in the west is even aware it exists. Don't they say China builds a city the size of Chicago every year?
Nationally, economic zones have concentrated Chinese economic growth since the 1970s. The new Lianjiang zone offer relaxed customs and a 10 percent income tax reduction (as well as building allowances and eased rules for operating foreign businesses) in a region that was already experiencing rapid growth. Located in the Chongqing region, this new economic zone follows the dynamic model of Shanghai Pudong (20 years old) and Tianjin Binhai (10 years old). Automakers are locating there in droves, and Ford is among many domestic brands. Other U.S. companies already in Chongqing or with plans to locate there include Pepsi, Lear, Coca Cola, Wal-Mart and GE.
Chongqing is not a small region in China -- it encompasses 71 percent of the whole country's land area, although sparsely populated with just 35 million. China's strategy is obviously to encourage economic growth in rural areas, and it is undoubtedly succeeding in a dramatic way. With a centralized economy and not much of a democratic process, China is advantageously positioned to dictate how the economic zones will work.
A delegation from Chongqing is touring the U.S., and I was able to interview Li Jianchun, who has been director of the region's foreign trade and economic commission since 2000. According to Li, some 2,000 acres are set aside for auto manufacturing, and there are now 24 automakers operating there (with 90 percent of their output serving domestic needs). An additional 3,000 companies make auto parts.
Last year, auto companies in the zone produced 1.698 million vehicles, a 61.5 percent increase over 2008. Auto capacity is estimated at three million annually, so there's room for growth. Ford will be making a half million cars a year in the zone by the end of 2010, Li said, adding, "We are encouraging Ford to build their green car facilities in China." Automakers in the zone are being encouraged to build battery electrics and hybrids.
Chongqing does export some heavy-duty trucks to Southeast Asia, South America and Africa, Li said, but the Chinese market is so large it can absorb huge production of new cars. Chang An (which is involved in a joint venture with Ford) produces a total of one million cars a year there. Li Fan Automobile does 150,000 a year. On the commercial side, Saic-Iveco Hongyan produces 40,000 commercial trucks and Heng Tong Bus 10,000 annually.
The green side is ramping up. The sale of so-called "new energy cars" (batteries and plug-in hybrids) is expected to reach 242,000 by 2012 (half of those are from Chang An, which will produce 20,000 battery cars annually by that date). From there, green car production escalates to an estimated 460,000 in 2015 and 750,000 in 2020.
At some point, the world's complacent automakers are going to notice all this is going on, right under their noses! The big challenge for Chinese automakers will be building cars of high enough quality to succeed on international roads. When that happens, look out.
Related:
Photo: Courtesy of Hill & Knowlton