Staff writer GUANGZHOU, China -- Browsing through glossy catalogs, a couple of men chat with dealers over the counter of a spacious car showroom. Beside them sit three brand-new cars. What appears to be an ordinary scene at any roadside dealership, however, is not run-of-the-mill; one of the cars -- a Honda Accord -- lists for 298,000 yuan, or 3.87 million yen, the amount an average Chinese office worker will earn in 38 years and over 1 million yen more than the equivalent model marketed in Japan. "If things go well financially, I hope to sell 400 (Accord) units a year," said Liang Nu, 45, a dealer handling Honda Motor Co. vehicles. Liang, who also runs a service shop, started the dealership with an initial investment of some 10 million yuan, or 130 million yen. Most of her customers are owners of small businesses, members of the new wealthy class rising in China's market economy, and usually pay cash, she said. For years in China, automobiles were only for high-ranking government officials who had their chauffeurs drive them around. With the market economy taking root in China, however, cars are gradually making public inroads, as taxis and family cars. In the coming century, China is expected to become the world's largest automobile market. Koji Kadowaki, president of Guangzhou Honda Automobile Co., a 50-50 venture between Honda and a local concern, said the Chinese automobile market is now going through the transition from a government-oriented market to one driven by private demand. "In the Beijing area, 70 percent to 80 percent of people who own cars are private citizens, and we would like to boost our business by focusing more on individual customers," he said. According to an estimate by the Chinese government, private-sector demand for autos, including taxis, accounted for 48.9 percent of China's total sales of passenger cars in 1998. In 1991, the level was 26.3 percent. With the prospect of that demand growing still further, Honda began test production last year at facilities it took over from PSA Peugeot Citroen of France. Having achieved a 40 percent local- content requirement imposed by Chinese authorities, the automaker began full-scale production last month. It plans to produce 25,000 units next year. Despite the high prices, Kadowaki said his firm has already received orders for some 20,000 units from its dealers across China. In addition to the existing model, which has a 2,300cc engine, Honda will start producing a new Accord model with a 2,000cc engine next March, a move intended to attract more individual consumers. Honda is not alone in hoping to cash in on China's potentially giant market -- driven by a population of some 1.2 billion. Toyota Motor Corp., Japan's leading automaker and the world's third-largest, is waiting for the green light from Beijing to start production in Tianjin, in northern China. When the approval is forthcoming, Toyota, which already has a joint venture for engine production in Tianjin, will form yet another venture with its engine partner to produce passenger cars with 1,300cc engines. Likewise, Suzuki Motor Corp., Japan's leading mini-vehicle maker, has been steadily increasing production of its Alto compact car, powered by an 800cc engine, in its joint venture. Other firms have also seen the potential. The Volkswagen group plans to introduce a new compact car to the market, targeting families and other private buyers. Volkswagen controlled 54 percent of the Chinese auto market in the first eight months of this year. While everyone expects China to eventually evolve into a huge market, the question remains as to how quickly the market will grow. Hoping to nurture its domestic auto industry, the Chinese government began in the mid-1980s to promote cooperation between domestic manufacturers and foreign automakers in the form of technological transfers and joint ventures. Domestic demand for automobiles, however, has so far failed to live up to the government's expectations. The government had projected that domestic passenger car production would be between 1.1 million and 1.3 million units by 2000, but actual production in 1998 came to around 500,000 units, said Miao Wei, a former government official. The number of cars sold last year stood at 508,284 units, according to government statistics. "The task we face at the moment is to stimulate consumers and expand the market," said Miao, president of Dongfeng Motor Corp., Honda's local partner for engine production. "It is easy to build a factory, but difficult to sell cars to consumers." The reason for the weaker-than-expected growth in consumer demand, many observers suggest, is that China lacks some of the features common in Japan and other major auto markets. For instance, loans for prospective buyers to purchase a car are rare in China because of the difficulty in evaluating an individual consumer's income. The after-sales market has also yet to be established here. During the era of the planned economy in China, the government was the sole buyer of automobiles and had its own departments to repair and provide maintenance, Kadowaki said. As a result, he said, there was virtually no need for an after-sales market. Fully aware of the importance of developing such a market, Honda has been telling its Chinese dealers to go beyond just selling cars, urging them to provide comprehensive customer services, ranging from parts replacement to full-scale maintenance. Now that China has sealed a deal with the United States over being granted a seat on the World Trade Organization, Japanese and other foreign automakers are likely to yet another turning point in their operations here, possibly in a favorable direction. The deal, which has taken Beijing significantly closer to WTO membership, is expected to have a positive impact on foreign players with a competitive edge, said Nobuyoshi Yoshida, president of Auto Business Practice Institute Inc. The Chinese government, which until now has maintained tight controls over the auto industry, will have to loosen up and adopt a freer market mechanism when it becomes a WTO member, he said. "There will be healthier competition in China's automobile industry, and those with a competitive edge will be able to expand in the Chinese market," he said.
