Foreign-Owned Car Maker Stuck in Its Tracks in China

From Reuters

A billion-dollar project to build cars in southern China may turn out to be one of the country's biggest foreign investment flops.

Panda Motors was the largest wholly foreign-owned enterprise approved in China. The U.S.-based company, with close links to the Korean Unification Church of Rev. Sun Myung Moon, planned to assemble 300,000 cars annually for export.

Now the showpiece project has stalled. It is a loss of face for Chinese officials at the highest level, who approved it, and for Panda executives whose ill-starred venture has highlighted the pitfalls that await novices to the China market.

Panda officials blame the global glut of cars and world recession and are seeking a partner to bail them out.

Industry analysts and Western diplomats in China said the project had also run into a brick wall of Chinese domestic politics since the rise of hard-liners following a crackdown on dissent two years ago and industrial protectionism.

They said Panda tried but failed to beat a system that has thwarted other foreign car makers in China.

"There has been a pause in our plans while we seek a strategic partner," said Panda's Chief Operating Officer Richard Cummins in a recent interview at Panda's 1.15-square-mile site in Guangdong province.

He added that since February there had been no new construction work at the site "to give our new partner freedom to design its own plans."

About $75 million of investment in a car assembly factory, office building and land is lying idle in the paddy fields of Huizhou in China's richest province. No equipment has been installed.

Panda officials decline to discuss the company's links with the Unification Church and whether there are plans to use the project for religious purposes.

An advertisement placed by church founder Moon in the International Herald Tribune newspaper in December, 1989, said he was "helping to create an automobile production city in southern China in order to enhance (China's) export opportunities."

Panda's publicly declared intention was to import car kits and assemble them for export only.

The first car was scheduled to roll off the assembly line late this year and by 1995 projected annual production was 300,000 vehicles. Panda would eventually produce its own car and total investment was projected at $1 billion.

By manufacturing for export, Panda would avoid crippling import taxes on car parts paid by other foreign companies assembling kits for sale in China.

It would escape many of the problems of sourcing parts in China and of government-imposed production ceilings that have blighted the joint-venture operations of Chrysler, Peugeot, Volkswagen and other foreign car firms.

Well-informed industry analysts, however, said they believed Panda had another agenda--to build a low-cost car for a growing army of Chinese motorists.

Without domestic sales, they said, the project could never be profitable.

There was a plan to bypass central controls and enter China through the back door of Guangdong, a freewheeling province ready to cut through red tape to attract big foreign investment.

"Nobody would put that much money into building cars in China unless they thought they could get into the domestic market," said one analyst.

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