Shenyang, China - On the gray, grim streets of suburban Shenyang, the residents were warming up after a long, hard winter. I sat back in the BMW 735L as my driver went past fleets of workers on bicycles. Many of them worked at Shenyang Automotive, my destination. Hardly any of them will earn enough in a lifetime to afford a car.
Yet, Shenyang Automotive - a subsidiary of Brilliance China Automotive Holding Co. - is aiming for a more expensive market. In December, the company will start selling the Zhonghua sedan, which will be built at an impressive new factory here. With its $500 million price tag - including the cost of vehicle design and plant construction - the China Car is an ambitious project for a company whose product lineup consists of a minibus built under license from Toyota Motor Corp.
Detractors say the Zhonghua - which means 'China' - is hardly Chinese. It was designed by Italians, built by Germans and powered by Japanese engines. None of that matters, says Hong Xing, Brilliance China's executive vice president. The company is taking the best available global resources and blending them into a Chinese whole. Moreover, 60 percent of its parts will be made in China.
'We say it's Chinese intellectual property because it's a product designed for the Chinese market,' Hong says. 'We have the ultimate say in making any changes to the product - how long to continue and to what extent we want to change it.' Indeed, the project will demonstrate whether the Chinese automakers are truly ready to compete with foreign rivals.
The man who lined up foreign expertise for this project is the son of a Chinese diplomat. Growing up in London in the 1970s, Hong Xing developed a taste for fish and chips and a liking for cars. He later moved to New York, where he earned a law degree and worked at the United Nations.
Disillusioned with diplomacy after four years at the United Nations, Hong accepted an offer to become a 'sort of PR person' for Brilliance China. In 1992, the company wanted its stock listed on the New York Stock Exchange. Its plan: Raise money from investors to launch a minibus joint venture. China Automotive owned 51 percent of a newly formed automaker called Shenyang Automotive. A company controlled by China First Automotive Group, a leading state-owned automaker, held the remaining 49 percent.
Using his knowledge of law, Hong helped China Automotive get its stock listed in New York. After that success, Hong - just 30 years old - was appointed the company's executive vice president.
China Automotive is a private company, registered in Bermuda and listed in Hong Kong as well as New York. It must stay profitable to please investors. And it was that imperative that caused a crisis. Back in Shenyang, it was evident that something was wrong at the minibus operation. Elderly management, almost entirely made up of engineers with no financial expertise, had brought it close to collapse. Its new chairman, Yang Rong replaced the old executives with younger ones. Only one of the board of directors appointed in 1993 was over 40. At the time, none had any idea how to make automobiles.
Facing fierce competition in the market for low-priced minibuses, the company started producing more expensive models in 1999. It worked. Minibus sales rose from just 8,717 units in 1995 to a projected target of 70,000 this year. Rising sales boosted profits, too. Brilliance China reported a net income of 959 million rmb, or $115 million, in 2000. Profits were up 45 percent over the previous year.
With its minibuses generating cash, Brilliance China decided to develop a large sedan. Realizing the need for up-to-date technology, Hong and his young team looked West for assistance. Rather than form a joint venture with a foreign carmaker, the company preferred to retain complete control, including all intellectual property rights.
In 1999, Hong visited Munich to start discussions with BMW AG. At the time, a Brilliance China subsidiary was talking to Land Rover Ltd. - then part of the BMW group - about introducing a Land Rover model in China.
'Gradually we came to a point where we started looking at cooperation between Brilliance and BMW,' says Hong. 'Now it's in both our interests to make progress as soon as possible.' The Bavarians agreed to help Brilliance China establish stable production. 'We are very careful about the wording of this,' Hong says. 'We don't want to give the impression that the product itself is developed by BMW.'
The two companies also are close to an agreement to produce as many as 20,000 BMWs per year in the new Zhonghua factory. The plant has a capacity of 150,000 cars. Both automakers are eager to use spare production capacity to assemble the 3 series and, although Hong refuses to comment, probably the 5 series as well.
Hong denies that the Zhonghua sedan will use any BMW components. But he acknowledges the prestige of building German cars alongside a Chinese sedan. Perhaps more important, the two automakers could earn money by exporting Chinese-made BMW cars to other markets. Brilliance Automotive does not plan to export the Zhonghua.
The Zhonghua's target is the Volkswagen Santana, Hong says. Brilliance China appointed Giorgetto Giugiaro's Italdesign to design a car that a Chinese buyer would be proud to own. The car has modern styling and a top speed of 190 kph. It is designed for the owner who prefers to ride in the back seat, as if in a chauffeured limousine. The car is aimed at business executives, taxi drivers and government officials.
Prices will range from $18,000 to $30,100. That is roughly the Santana price. A minivan version will be launched in late 2002. Brilliance China is confident the Zhonghua will appeal to China's growing ranks of entrepreneurs, who Hong believes are 'the future of this country.'
I glimpsed that future when I visited Shenyang, China's fourth largest city. The pavement in front of McDonald's was crowded with bicycles. Next door at the French joint-venture store, shoppers carried bags to the car park past jobless residents who poked through the store's trash, looking for discarded food. Shoppers drove VW Passats and Santanas, and Audi A6s.
As Shenyang's street scenes demonstrate, Chinese consumers have a taste for foreign goods. But Hong believes Chinese consumers 'will give credit where credit is due. If a Chinese manufacturer can make a good car, that's the way they will judge it. People are no longer ashamed to buy a Chinese product.'
E-mail writer John Boley at [email protected]