Moving to the beat of China's car boom
(2004-01-22)

Moving to the beat of China's car boom

Christopher Tan, Senior Correspondent

CARS

China's rapidly growing car market has been a strong pull for Singapore firms, some of which ventured to the country as early as in the 1980s. This third of a five-part series on megatrends in China examines this phenomenon.

CHINA'S motorisation has been phenomenal in recent years.

The new vehicle market for cars and light trucks was almost the size of Germany's last year - four million units, up from 2.4 million in 2001.

This is expected to hit six million next year and 12 million by 2007, when China is expected to rank as the world's second-largest market after America.

It is the promise of such growth that has lured major foreign companies - from Caterpillar to Delphi, Toyota to Peugeot, and BMW to General Motors.

Likewise, Singapore firms have ventured there, some as early as in the 1980s.

THE PRICE OF LEARNING

STAMFORD Tyres president Wee Kok Wah remembers his foray into China in the late 1980s, when the place was just beginning to open up.

'I didn't speak the language. Still, I went alone,' he recalled with a hearty chuckle. 'I was very adventurous.'

He lost his way - 'I wanted to go north, but the train was going south' - and he lost money.

'We lost millions. But that's money for learning.'

'We went in too early,' he added, explaining that the market was 'not ready', 'basic' and 'strict'.

'And there were two currencies, one for locals and one for foreigners.'

Most crucially, it did not have a distribution infrastructure that a tyre business needed.

'We hung on despite the losses. It took about five years to put our own distribution in place,' he said.

Stamford's operation in China is now profitable, contributing about 20 per cent to revenue. He sees the business contributing 50 per cent eventually.

'It's amazing how quickly China has changed compared with the other markets we're in,' said Mr Wee, 57, whose business takes him from Asia to South America.

Despite the progress, he observed that 'quality of service is still very poor'.

'They may have the right equipment but they don't know how to use them. And wages in big cities are not cheap.

'The Chinese like to be their own bosses. If you don't pay them enough, they'll just go.'

Stamford is well-poised for China's motorisation.

'Unlike others, we're in both car and truck tyres,' he said. 'With trucks now travelling faster because of more expressways, they need to switch from nylon to steel radial tyres.'

ADDING VALUE IS KEY

COMFORTDELGRO Corp chairman Lim Jit Poh sees opportunities in China, but expects a long haul before contributions become meaningful.

The firm dipped its toes in the Middle Kingdom 10 years ago, when then-Comfort Group set up a taxi operation in the Suzhou township.

'They needed money back then,' Mr Lim said of the Chinese. 'Today, when they have money, why do they need you?'

Moreover, other foreign investors are knocking on its doors. 'We're no longer the favourite child,' he said.

Which is why the group is now looking to 'downstream, value-added' activities for returns. These include setting up vehicle workshops, fuel retailing and vehicle inspection - in short, replicating what it has done so successfully in Singapore.

It has one operation in Suzhou that mirrors this. Its cab business is complemented by a workshop, a petrol pump and a Toyota dealership. 'If this can be expanded, we're home,' Mr Lim, 64, said.

Meanwhile, the merger with DelGro has also put it in a better position in China.

'We're now the biggest land transport group in the world, and certain provinces are inviting us in,' Mr Lim said, adding that Comfort and DelGro did not have to compete with each other anymore.

He said there are still some outlying provinces where the first formula of 'bringing in money' still works.

In all, the group has invested $165 million in China. And it intends to invest more. Last month, it entered into a $23-million venture with Shenyang Taxi to start plying the roads with 700 taxis.

Mr Lim reiterated that this business model would not be enough. Taxi licences are costly in China and wages are rising.

'Taxi drivers are getting 2,000 yuan a month and junior managers are getting company cars,' he said. That amount is equivalent to around S$420.

The chairman has a few observations of the Chinese, as well as of ComfortDelGro.

'They're very focused, they're bright, and they can drink. We were just too comfortable in Singapore.'

He is banking on a development to boost returns for the group: advertising.

'Right now, the Chinese don't allow advertising on taxis,' he said, but added that he is hopeful they will eventually open up. 'The right time to do it would be in 2008, the year of the Olympics.'

PATIENCE WILL PAY OFF

'THIS will be the Chinese decade, if not the Chinese century,' declared Mr Joseph Ong, 55, managing director of Singapore-based motor group Tan Chong International.

The group is relatively late in its foray into China, having gone there only in the late 1990s. But it is already churning out car and bus seats, assembling trucks, making shock absorbers and selling Subaru vehicles.

It has also invested in a mini-car project between Fuji Heavy Industries - maker of Subaru vehicles - and a Chinese partner.

Contribution from the project, however, is still 'very very small'. He said: 'It's nothing to shout about. It could be, but not at the moment.'

Based in Hong Kong, Mr Ong, a Singaporean, has plenty to say about doing business in China.

'Singaporeans are not suited for the risk-taking the Chinese are prepared for. We're just not built like that. We're too governed by the rule of law. They have imagination and a huge appetite for ambition.'

For instance, he said, an aspiring Toyota dealer 'would not bat an eyelid to blow 20 million yuan to build a showroom before securing the franchise'.

They do that and then approach Toyota, he said.

'The risks they take commensurate with their huge vision,' he said, adding 'there is a lot of money floating around'.

He said Singaporeans' risk-averse make-up stood them in poor stead in China. 'We tread with caution; and caution may not be the best thing when doing business in China.'

Having said that, he observed that dealing with the Chinese could be fuzzy at times.

'It may be a cultural thing, but don't say yes or no outright,' he said.

'And when they sign a memorandum of understanding, it's just an intent. For us, an MOU is 95 per cent, if not 100 per cent.

'You might find yourself having to negotiate all over again. That's where having patience pays off.'

CHINA FEAR? WHAT'S THAT?

MR RICHARD Tay, managing director of newly listed tyre and wheel distributor YHI International, reckons that doing business in China is no longer perilous.

'In the past, people used to talk about how difficult it was. But today, China has opened up,' he said in a phone interview from Shanghai.

'It's not a big problem for Singaporeans to be in China. Rather, it's the same problems you'd face anywhere else in the world if you don't know the culture.'

He added: 'After 1998, the Chinese changed. They now know the needs of the international community better. China should not be feared anymore.'

He should know - he has been in China for over 12 years now. YHI's main businesses there include:

The manufacture of rims - mainly for export;

Sole distribution for Yokohama tyres;

An investment in a Yokohama plant in Hangzhou; and

The manufacture and distribution of Hitachi car batteries.

But its main revenue churner is Yokohama tyres. It sells 700,000 a year, and expects to double sales to 1.4 million next year.

The helmsman said YHI has been profitable since the first year it entered China.

'Maybe it's because I'm Chinese-educated,' said the 52-year-old former Chung Cheng High boy. 'We are not greedy, and we go step by step. I'm proud to say, we have zero bad debt in China.'

He said YHI's businesses in China will grow further. Last year, 38 per cent of group revenue was from there. This year, he expects 'over 50 per cent'.

Steady roll-out

A look at the investments and operations of some Singapore car companies in China

STAMFORD TYRES

Tyres business

Falken, Firenza and Dunlop car tyres

Falken, Sumo and Dunlop truck and bus tyres

Setting up 400 sales outlets

Dunlop distribution includes Hong Kong, Macau and Vietnam

Wheels business

Stamford Wheels rims distribution, including Hong Kong

Amount invested: HK$60.2 million (S$13.4 million)

Revenue contribution: 20 per cent in 2003 and 20 per cent this year

COMFORTDELGRO

Bus operations

670 in Shanghai, Guangzhou, Hengyang and Zhengzhou.

Taxi operations

7,600 licences in Beijing, Shanghai, Shenyang, Jilin, Nanning, Suzhou, Xiamen, Yantai and Hengyang

Rental cars

820 in Beijing

Bus station

One inter-city station in Guangzhou

Amount invested: $165 million

Revenue contribution: 5 per cent last year with long-term target of 30 per cent for total overseas contribution

TAN CHONG INTERNATIONAL

Components business

Manufacture of bus seats in Xiamen, car seats in Wuxi, shock absorbers in Wuxi and tyre ventures with Stamford Tyres

Vehicles business

Mini-car venture with Fuji Heavy Industries

Investment in Nissan Diesel truck venture

Distributes Subaru vehicles in Guangdong

Amount invested: US$10 million to US$20 million (S$17.2 million to S$34.4 million); investingmore soon

Revenue contribution: Less than 5 per cent

YHI INTERNATIONAL

Tyres business

156 Yokohama distributors and 1,400 retailers in 27 provinces

Wheels business

Plant in Shanghai manufactures 90,000 to 120,000 sports rims a month, mainly for export

Batteries operations

Manufactures and distributes Hitachi car batteries; plant in Guangdong is due to start up in April

Amount invested: US$20 million

Revenue contribution: 38 per cent in 2003 and more than 50 per cent this year

  
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