China key to Australian automotive exports

Australian automotive suppliers urgently need to find ways to export their components or expertise into China if they are to survive.

The grim warning was made overnight by Christopher Wright (pictured), a deputy consul-general for Austrade, based in Shanghai.

In the lead-up to this week's Beijing motor show, he told a group of Australian journalists: "My job is to find ways to integrate the Australian automotive industry into what's happening in China. And my view is if they're not involved in China, they're not going to have the economies of scale in front of them to sustain their development budgets. If you want to amortise anything over volume, then China is the place to be.

"If you want to have a future you really need to have a part of [the Chinese] market. For a country like Australia -- and a market the size of Australia -- that's not going to be through producing cars in Australia to export to China. But it certainly could be working with Chinese component suppliers or being a component supplier here."

China became the world's biggest car market last year, overtaking North America. China sold 13.6 million cars in 2009, compared to the US figure of 10.4 million -- the lowest in 27 years.

Sales in China are powering along at a rate that continues to shock the global car industry, up by 63 per cent in March compared to the same month last year, reaching 1.26 million sales -- more than the number of new vehicles Australians buy in one full year.

"We are confident that China's vehicle sales will surpass 17 million units this year, growing by about 25 per cent," Rao Da, general secretary of the Shanghai-based China Passenger Car Association, was quoted in a CBC News report as saying.

The only vehicle exported to China from Australia is a Buick-badged version of the Holden Statesman, but it is sold in modest numbers and many of those are driven by Australian embassy officials (although Wright drives a Volkswagen Passat).

As Australian car makers and component suppliers continue to struggle domestically under the weight of cheaper imports, and rely on taxpayer-funded assistance to remain viable, the Austrade official also revealed that of the 3000 Australian companies it is helping establish business with in China, "only a handful" are automotive suppliers.

"Last year we brought on four new staff in China just to focus entirely on working with automotive companies -- technology or suppliers -- to work with local companies here," he said.

Meanwhile, Wright, who has worked in China for most of his career, predicted that Chinese car makers would become "globally competitive" much sooner than any other developing country has done in the past.

"You watch this space carefully. This country is going to be producing cars I think that will surprise the world in a shorter space of time than you may imagine.

"They've surprised the world before in other areas ... and I think they will also surprise the world in the way they use cars.

"Just take phones as one example. The Chinese are in effect leap-frogging the landline phase of telephones. Land lines went out to a few regions, but ... there are now more than 500 million mobile phone users in China. Phenomenal numbers.

"They will do the same with cars. Whatever the latest technology is, they will adapt to it. They are very pragmatic."

Meanwhile, the Free Trade Agreement between Australia and China, which would likely open up the floodgates to cheaper Chinese imports (rather than pave the way for automotive exports) is yet to be finalised, Wright said.

"The Free Trade Agreement is still happening. It's a work in progress. We've just had the 14th or 15th round of discussions.

"The Free Trade Agreement between Australia and China is a sophisticated beast.

"It's not a highly narrow-focused Free Trade Agreement such as the one New Zealand has got, which is really around agriculture and a couple of other things ... in a very small market.

"Our Free Trade Agreement is very broad. It's about investment, it's about services, it's about manufacturing, it's about automotive, all sorts of stuff.

"If our [FTA] comes off it will be the first broad-based fully market-based FTA agreement between China and anyone. So it will be the benchmark for the way China then engages with other developed OECD economies. So it's not something that can be given birth to easily.

"At the political level there is 100 per cent support to push this through, from both sides, but getting the detail right is hard work."

In Australia, foreign cars already far outsell locally-made vehicles. According to Federal Chamber of Automotive Industries figures, so far this year 90,000 vehicles have come from Japan (up 13 per cent), 42,000 have come from Korea (up 68 per cent), 38,000 have come from Thailand (up 8 per cent), while Australian-made cars accounted for 35,000 sales.

Chinese-made cars accounted for a fraction of the total new vehicle sales in Australia (1400) in the first three months of this year, but at least six new Chinese-made vehicles are due in showrooms by the end of this year.

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