China to flood Russia with its low-quality cars over 5 years

Fast-growing Chinese automaker Geely Automobile Holdings has signed a contract to try to sell up to US$1.5 billion worth of cars in Russia over five years, but said on Tuesday the deal will contribute significantly to profit only starting 2010.

Photo: China to flood Russia with its low-quality cars over 5 years

The homegrown firm, which recently re-designed its logo to shake off its image as a purveyor of low-priced cars, signed a new sales agreement with the Rolf Group of Moscow this month.

Geely and its new-found Russian partner have agreed to try to sell an average of 30,000 cars in Russia per year starting Nov 2007, which Executive Director Lawrence Ang said would not present huge problems given that Chinese car makers had been selling within the country for years.

"Our overseas sales will grow very fast next year, when our Indonesian and Ukrainian plants start large-scale production," Ang told Reuters on Tuesday.

"We will ship the cars from China to Russia at the begining and then rely on domestic production after we sign a formal contact on an assembly plant there," Ang told Reuters in a telephone interview.

Geely is one of China's few privately run auto companies -- and one of its most ambitious -- with no foreign partners locally.

Selling some of China's cheapest cars under the Geely and Maple brands, Geely is planning to double capacity next year and set up assembly plants in North America and Europe, as it looks to expand beyond a fiercely competitive home market.

Ang would not give an overseas sales target for next year, although Geely has said it hoped to sell 190,000 vehicles in 2007. Geely plans to double overseas sales to 20,000 cars this year, from about 10,000 in 2006.

But the company, which said it sold thousands of cars in Russia this year, takes a cautious approach to expanding overseas, and expects sales in Russia to pick up only gradually.

Geely is in talks with Automobiles and Motors of Ural to form a complete knock-down (CKD) or full-assembly plant in Russia with initial annual capacity of 30,000 units.

The company has signed 14 contracts or letter of intents to set up SKD -- semi knock-down, or assembly -- plants around the world, mainly in developing countries such as Indonesia and Ukraine, Reuters reports.

As Pravda.Ru previously reported China may inundate Europe and USA with low-quality cars in 2008.

Vehicle exports from China, the world's third-biggest producer, may increase at least 46 percent this year as carmakers manufacture more sedans and trucks.

Auto shipments will exceed 500,000 units in 2007, the Ministry of Commerce said in a statement on its Web site yesterday, citing the minister, Bo Xilai, at a meeting with the nation's car exporters. Last year, overseas sales doubled to 342,400 units, customs data showed.

China has more than tripled automobile output and sales since joining the World Trade Organization in 2001. Last year, it surpassed Germany as the world's third-largest vehicle maker. The nation has designated eight port cities, including Shanghai, Tianjin and Xiamen, to serve as the country's main automobile and component export centers.

“China has to expand its overseas markets as production capacities for vehicles are rising much faster than we had expected,'' said Zhang Xin, a Beijing-based analyst with Guotai Junan Securities Co. ``Many Chinese exports are currently sold to the low-end markets, including Africa and South America with low margins.”

Source: agencies