While foreign auto giants drive one after another into China, Chinese automakers are stepping on the gas to go abroad.

But they should avoid impetuous expansion overseas and improve their own competitiveness first, analysts suggest.

Chery Automobile Co Ltd, based in East China's Anhui Province, has been in talks with Malaysia's Alado Corp to assemble Chery cars in the Southeast Asian country.

"Our partnership with Alado will be finally hammered out within two weeks,?Meng Tao, assistant to sales director at Chery, told China Business Weekly last Wednesday.

But Meng declined to release further details about the deal.

Earlier media reports said Alado will have the exclusive right to assemble and sell Chery's four models, namely Fengyun, Qiyun and Dongfangzhizi sedans and the QQ subcompact car, in Malaysia.

Malaysia is the largest passenger car market in Southeast Asia, with more than 300,000 units sold annually.

Chery's first overseas production plant has started operations in Iran.

The plant manufactures 30,000 Chery cars annually in CKD (completely knocked-down) form.

Chery is the first Chinese automaker to produce passenger cars abroad.

The automaker is now considering plans to enter the US market.

Chery mainly exports to Egypt, South America and the Middle East.

The company exported nearly 4,000 cars in the year's first three quarters, accounting for 57 per cent of China's total car export during the period, Meng said.

"Our export target for this year is 10,000 units,?Meng said.

Chery exported 1,200 cars last year.

China exported 6,925 cars in the year's first three quarters, a year-on-year surge of 324 per cent, indicate customs figures.

The nation produced 1.8 million cars during that period, a rise of 27.9 per cent year-on-year, according to China Association of Automobile Manufacturers.

While China's local automakers look forward to a rich harvest overseas, experts doubt whether they can reap sustainable profits there.

"China will suffer excessive auto supply in two years since many automakers blindly expanded production capacity in recent years,?said Lin Lei, president of Sinotrust Marketing Research & Consulting Ltd, a subsidiary of Sinotrust Group.

"It is reasonable for them to hope for expanding businesses abroad. But I doubt if the upstart local automakers are mature enough to explore overseas market,?Lin told China Business Weekly.

"Apart from cheap prices, what else do these firms own to compete overseas? Technology? Brand popularity? Management? After-sales services? If they haven't built a solid base in these areas, how can they support themselves and seek sustainable growth overseas??Lin questioned.

Lin urged local automakers to "do lots of homework?before taking big steps overseas.

Sinotrust Group is one of China's largest consulting organizations.

"Frankly speaking, Chinese automakers have not grown strong enough to dabble in real international competition,?Li Junmei, Zhongxing Automobile Co's public relations manager, told China Business Weekly.

"China's car exports markets are mainly developing countries with relatively low per capita income and low technical standards and requirements for vehicles,?Li said.

Zhongxing, based in North China's Hebei Province and making pickup trucks and sport utility vehicles, plans to set up a production plant in Russia.

"We are now negotiating on the details of the deal and the framework has already been decided,?Li said.

Zhongxing has plants in Egypt, Viet Nam and Turkey.

What are JVs doing?

Shanghai Automotive Industry Corp (SAIC), the joint venture partner of GM and Volkswagen in China, made a joint bid with MG Rover to buy the Polish car operations of South Korea's bankrupt Daewoo Motor earlier last month, the Financial Times (FT) reported.

The FT said the bid was the first attempt by a Chinese carmaker to buy a European producer.

But SAIC spokesman Xue Hao last week told China Business Weekly: "We have not heard of any information about such a bid.?

Some analysts said the deal could possibly give SAIC access to the East European market.

The Polish plant has an annual production capacity of 250,000 cars.

"International operation is a very important part of our business strategy and we are looking for the best way to approach that,?Xue said.

SAIC is using capital injection as the first step to become internationalized, Lin said.

"By holding stakes in foreign companies, SAIC may have more room for manoeuvres overseas,?Lin said.

But whether such a practice is useful depends on whether SAIC has the ability to consolidate the resources in its hand, said Jia Xinguang, an analyst with the China National Automotive Industry Consulting and Development Corp.

SAIC reached a deal with Ssangyong Motor's creditors to buy 48.9 per cent stake of the debt-ridden carmaker at the end of last month.

In late 2002, SAIC paid US$59.7 million to acquire a 10-per-cent stake in GM's venture in South Korea, GM Daewoo Automotive & Technologies Co Ltd, marking the first overseas acquisition by a Chinese auto company.

Car exports from Sino-foreign joint ventures account for a small portion of China's total car exports.

SAIC, for example, has exported Volkswagen's notchback Polos and GM's GL10 model.

"The number is not big and cannot generate handsome profit for the Chinese side,?Jia said.

"The key reason is that the Chinese side does not own these brands, which means they have almost no voice in getting orders and distributing cars overseas,?Jia said.

"Foreign automakers come here for the potential of the Chinese market itself. Turning China into a base for exports is not their primary goal,?Jia added.

The prices of cars made by the JVs are not competitive internationally due to higher costs arising from high technology transfer fees, Lin said.

"If the joint ventures could have their cost and product quality in line with that on the international market, the situation will improve,?Lin said.

(Business Weekly 11/10/2004 page1)