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China Puts The Screws To BMW
The market is gigantic: With sales of new vehicles approaching 18 million units in 2011, China is the largest market in the world, far ahead of the US, with its 12 million units. Some fearless industry voices estimate that sales will reach 28 million units in 2017—fearless because the China bubble might blow up before then, which would rejigger the numbers on a massive scale, as it did in the U.S., where sales dropped from over 16 million units before the credit bubble burst to 10 million units during the crisis. However, no major car maker in world would want to miss out on the opportunities in China, and BMW is no exception. And yet, risks are mounting.
Relentless pressure from the National Development and Reform Commission (NDRC) of the Chinese government is pushing foreign car manufacturers to share more of their advanced technologies with Chinese partners, particularly in the hot sector of "New Energy Vehicles" that was defined in China's most recent five-year plan as strategic industry. The government cites environmental concerns as primary motivation for this shift to electric vehicles. However, the environmental benefits of electric vehicles are not that clear in a country where about 80% of the electricity is generated by burning coal, the filthiest of all fossil fuels. So there have to be other reasons.
"China should attach great importance to research and development of core technologies in green vehicles," said Wang Fuchang, a deputy director-general with the Ministry of Industry and Information Technology, about a year ago. The goal: Aim for "a global lead in this field by 2020." Through technology transfer.
It's not a law, but every car manufacturer that wants to build cars in China has been given to understand in closed-door talks that it must share "New Energy Vehicle" technologies with Chinese partners. The deadline is 2015. Car manufacturers have responded by offering to create China-only brands. VW already has decided on the brand Kaili, Daimler is following suit, and now BMW can no longer drag its heels.
"We will find a solution," said Friedrich Eichiner, member of BMW's board of management during a press conference last week concerning talks with the NDRC. And he sketched the outline of a solution: BMW and its Chinese partner, Brilliance, will build a separate brand for New Energy Vehicles. However, these cars will not reflect the latest BMW technologies because it wants to give up as little as possible and protect its critical technologies long enough to where they're no longer critical. And the new brand will not have any connection to the brand BMW to avoid "watering it down," Eichiner said.
Fat profit margins: Over 25% of BMW's worldwide profits come from China, though it sells only 15% of its production there. And it's just scratching the surface of the 1.3 billion potential customers. The versions sold in China are more profitable because they're loaded with luxury items and are specifically designed for Chinese tastes. The rear seat is the most important location in the car as BMW owners in China tend to have chauffeurs. Hence, rear seats are more comfortable, afford more legroom, and offer the latest infotainment, not only in the 5 and 7 series but also in the smaller 3 series.
To meet the Chinese demand for its flagship products, BMW is plowing $1.4 billion into the expansion of its plant in Tiexi, Shenyang province. The plant will then have an annual production capacity of 200,000 units. With the 100,000 units from its Da Dong plant, BMW will have a capacity of 300,000 units in China.
A risky bet for BMW. These outsized profit margins and rapidly growing sales are what BMW is trying to protect in the near term. And so it has to yield to the demand by the Chinese government to share technologies with Chinese partners. But in the longer term, especially if electric vehicles take off, BMW might create formidable competitors that will try to eat its lunch down the road.
For an example of how fast small Chinese companies can blow away worldwide competition: "PROST! Germany Lost the Beer War, And China Won).
Wolf Richter - www.testosteronepit.com "where the truth comes home to roost."
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Western leaders, western military strategists, and western businessmen could benefit from reading "The Art of War"; apparently from our actions, it may as well have been in Chinese...
:^)
China's problems are as bad as ours. What are they going to do when we default on our debts and when they can no longer be a net exporter? They're going to have to quash a revolt, that's what.
SO the USA defaults on debt when? That will be the news of the year! Never mind the hypothetical riots resulting in China...that's star gazing...China may have other solutions up their sleeves. If that Cause occurs, like you say, the Effect can take many different avenues...you prejudge the issue. But the Cause...that's the kicker.
Bah. China couldn't care less about US debt. How transparent do they have to be!?! The payment they have recieved is the transfer of the entire manufacturing base that brought the US to power. Worthless paper is a VERY small premium to pay for global domination. Were China to write off every US dollar they have to zero, they would still have the productive base for the world. What would the US have?
China can't let on that they know the true value of the fiat. They are better off allowing the game to continue, at least for now. Recent Chinese warehousing of commodities combined with heavy purchasing evidences China's grab for final value, a long-term end game for as long as the US currency is world tender.
It is in China's best interest to use their current trade imbalance to take possession of whatever resources they can and to purchase resource producers that will sell out. They must maintain the system while this occurs. To simply look at debt growth is too shallow a play. There are other benefits China receives for letting this sharade continue. Watch for the day that the marginal utility of global trade no longer favors China. The transition will be at hand, and China's ghost cities will be seen to have a purpose.
Everything China does favors the future. Today you witness a play of epic proportions. China didn't dominate the balance of global trade for 5000 years by being idiots. This opponent has a strategy and it's working well. This battle's not starting. It's ending.
The battle will end in a pile of depleted uranium and atomic debris. Neither country will be inhabitable. The U.S. will most definitely employ the Samson Doctrine. Enjoy.
A bald Samson...humm...
So you're saying in free trade, you're a sore loser? Thank god there aren't free markets or it might be a literal blood bath if you don't like the bargain. WTF?
Bah. China couldn't care less about US debt. How transparent do they have to be!?! The payment they have recieved is the transfer of the entire manufacturing base that brought the US to power. Worthless paper is a VERY small premium to pay for global domination. Were China to write off every US dollar they have to zero, they would still have the productive base for the world. What would the US have?
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Another example of US fantasy spreading over.
The USD is vital to China manufacturing.
Even though US citizens want to think that the human activity called production is production, it is only consumption of the natural world.
To enable their industrial base, the Chinese need an access to the world commodity market. And the US is selling the entrance ticket: the USD.
I have been saying the same thing to my friends for a decade. None of them believe me.
Fortunately for their Socialist government they have experience squashing dissonance. And being a favored nation of the U.S. has only supported their oppressive regime.
http://www.youtube.com/watch?v=XJBnHMpHGRY
http://en.wikipedia.org/wiki/Tiananmen_Square_protests_of_1989
Future history books, written in Mandarin will talk about this period, where in pursuit of greed, the great Western Powers literally gave away their advantage to their foes...
http://www.youtube.com/watch?v=OTSQozWP-rM 1:03
Consider their alternate option. China reverse engineered a fukkin aircraft carrier, and can now produce its own, no doubt with improvements. Do you really think an electric car is going to stump them? The world's technology is theirs. Just take a look at where everything comes from. The vast percentage of world IP is in China already. That which they don't have, they can easily reverse engineer and take without royalties. There is a little China cannot currently produce, and the US government is forcing that outside the borders. Gibson guitar anyone?
The value today is in processes, not technology. Faced with a scenario that you could 'partner' with China and sextract a little final value, or watch as they steal and better what you've produced, what would you choose? Add that this is one of the few ways to maintain the income stream a bit longer, and perhaps you'll better understand the motive.
I'm not condoning the actions of these decision makers, only demonstrating that there's a powerful force guiding their hands. They've already lost the battle. These offerings are the final crumbs and soon they will be no more. At that time, the 'loyalties' these crumb gatherers have shown to China may help them escape the fate they've left others to.
Have a pleasant night.
PS. China's ghost cities are ready for the exodus of good minds from the developed world. China built up to manage it in advance, and the world is too stupid to realize. Chinese ghost cities aren't a product of feable minds. They are outward evidence of a strategy that's been in play for years. Once they have all the IP assets, the only thing left to capture are the minds. By capturing the minds, China gains the added benefit of capturing the consumption giants of the world, bringing sustainability to their model while Chinese consumption grows. Pretty brilliant actually, and not something one should need a PHD to realize with all this evidence around.
The Chinese didn't reverse engineer an aircraft carrier: they bought one off the Russians that they couldn't afford to finish, spent a decade figuring out hot to get it to work, and haven't even started building one of their own. They have to educate the shipyards and crews, and are just starting on that.
IP theft isn't theft in China: they talk the talk but reality is, China has still yet a long way to go to come even close to European, Japanese and US goods, even those made in China. it's not so much the engineering, but much more the design that makes many consumer products desireable. That takes talent and serious training, and guess what: nurturing designers through training is not a strong suite of Chinese education. No originality.
Then again, that's what folks said about the Japanese 30 years ago...
Still: they didn't reverse engineer an aircraft carrier and continue to have serious QC problems on complex things such as jet engines and the like: better never fly on an airplane running with Chinese engines that hasn't had a very recent revision to those engines...
Oh, and those ghost cities? Misallocated capital. You can't build for inventory in the hope that sometime someone will move there. Empty buildings decay fast and rapidly become worthless unless you maintain them: there is no money for maintenance for the ghost cities. Wait 3-5 years and they'll start to sell them off for a fraction of what they cost because it's the only way that can get out of the deal entirely...
Dumbest post ever...China doesn't produce ANY copy that is superior to the original.
And nobody is going to be moving from the west to effing some shit city in china.
China's theft of western technology will eventually result in some kind of war. And china will again lose.
Also ICBMs, Satellite Killers and Stealth Fighter Jet courtesy of western companies
Chinese people are racist to the core. No way would they allow an influx of non-asian or some other asians into their territory.
The empty cities have been built as the result of a massive misallocation of captial by central planning and not the result of some grand scheme.
Chinese people are racist to the core. No way would they allow an influx of non-asian or some other asians into their territory.
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Projection is a crazy thing for US citizens. The last sentence is an evidence that Chinese are not racist.
But US citizens want racism to be human nature, so it is what you get in this US driven world.
Some Tibetans and Mongolians beg to differ. And yes Han are like j000s with their superiority complex. Nice to see that ZH doesn't get blocked by your wonderful, very large country wide firewall.
Differ in what?
They are going to explain that Chinese (which you reduce to Han) are racist? When they might experience the reverse?
Your last sentence made me laugh. If Chinese could develop a firewall to screen propaganda, waooo, US contributions to the Internet would plummet.
Individuality does not exist in this US world order. Once again, another US citizen, like the good US citizen he is, could not resist his eternal US citizen nature.
If one states a fact (here, that Chinese are not racist), one must forcefully be a Chinese.
That is the dangerous and unbelievable slope the US has put the Western world: anyone speaking facts that are adverse to one's own group or the mainstream propaganda has to belong to another group.
US citizens are naturally bent against truth.
Did they reverse engineer an aircraft carrier? I thought they just refurbished that old Soviet carrier they bought from Ukraine.
The Chinese (to quote a British Foreign Secretary) "were thugs, are thugs and always will be thugs." They cheat they steal they break copyright. That is the sum total of their plans for advancement. Trouble is, they don't have a system of feedback up the chain of command. Their much touted high speed rail network is mothballed because they just aren't that good at building things from stolen blueprints. And believe me, EVERYTHING in their rail network was stolen from good-faith partners who foolishly opened their books because they believed their Sino partners.
I lived in Hong Kong during the building of a Nuclear Power plant in Shenzen. A contractor got caught leaving a third of the reinforcing rods out of the containment building in order to skim off the money. The Chinese desire to make money at the expense of everyone else's lives (witness melamine in baby formula) means that the only ethnic group the Chinese distrust more than gweilo's, are Chinese. And that is why they will never be able to capitalise on the tons and tons of stolen blueprints they have. Some greedy fool will put his grandmother's life at risk building an electric car just so he can buy a house in Vancouver, and a coworker who discovers it and goes to the local government functionary will be jailed for 50 years for releasing state secrets, then the electric car guy will be stoodover by the party functionary who wants a house in Sydney, and so on and so on...
All this Chinese piracy won't amount to a hill-o-beans until the Chinese learn to be more concerned about being honest than with losing face.
And if ever there was a timely news story...
Coming from the mouth of chief thug nation of the nineteenth century this is a rare compliment indeed.
You have it right. I have friends and family there. You have to remember their recent history. To survive in a communist country you lie (say whatever authorities want to hear), bribe and seek influential friends in government if you can.
You don't take people who've had two or three generations of that and change them overnight. So if you have them manufacture something for you and ask them to meet all appropriate regulations they will say "Yes!" even without knowing or researching what they are until something bad happens. Your toys have lead paint not because they purposely put it in or had evil intentions but because they don't know the rules, don't care and that lead paint was the cheapest and easiest to use. They say whatever you want to hear and take all shortcuts possible.
In China if you have money you buy Western stuff or stuff made in China but to Western standards if you can, including condo's, clothing and electronics.
Buying cheap clothes is no big deal. However, sourcing your meds like heparin, pet food, baby food, etc. is a big deal. Western countries who manufacture there and do not inspect carefully are fully liable in my book. I hate lawyers but it's a great case to me to collect.
Having said that, China wants all technology and BMW and others get squeezed. The prize is doing business there. I am suspicious to this day of our military surveilance plane that crash/force landed in Hainan. That plane should've been ditched or destroyed but was handed over. That's the beginning of a conspiracy to me.
The bottom line is they are a technology vacuum. We saw how fast Japan caught up to the West in the 19th century. China means to do the same.
The Chinese are "Thugs"????? Ever hear of the "Opium wars"??? Chinese are not angels, but the Brits!??? a.k.a. the "City" of London??? For fucksake.....
Exactly. I've found that unless someone has done business over there, that person just can not get it because if you were raised in the U.S., EU, South America, etc., you just have no life experiences that can open your mind to how corrupt a system can be. After spending some time there, everyone, and I mean EVERYONE, I've met always comes away from the experience shocked but with eyes newly opened.
The unfortunate thing for the Chinese is, you can build all the factories in the world, but if there is no one to sell all those trillions of products to, then the factories not worth anything.
What makes a country strong, is having resources and a manufacturing base that is largely self sufficient, this means mostly internally without other dependancies. When the US rose to power a hundred years ago this was true. The Chinese require other nations to sell to, but this can only go on so long and then the balance of payments must reverse. When this happens the Chinese will find their system is way to corrupt to survive. They will have lots of factories, but nothing to do with them, so they will go into disrepair and become obsolete, and find the whole effort was a waste of time.
Have been saying something like this for years. China wants to know how the system and science work in order for their manufacturing and their technology to be at par or better than other countries in the west. They don't want a learning curve (which many wouldn't want anyway), they want to be able to go toe to toe with the west. And this is because they aren't stupid. They know along with the US and parts of europe that eventually in the future there will be a war for resources a true war. The resources will be food, minerals both scarce and not, water, and to be honest with you women (they along with other countries need and want women and they see other countries having more than enough). So when this war happens, it won't go nuclear at first if not at all. But China and others will have a significant tech base along with weapons that will scare the US and europe from going all the way in a war scenario.
I see China annexing Australia in the future (just watch), hell Vancouver is considered HongKong east now. They see Australia having a population of 22 million and change with all that land, and then Canada with a population of 34 million and change with 90 percent of the people living within 100 miles of the US/Canadian border. They want all this land and usable land at that. They have a burgoning population along with India and they need and want it. So see the fight for resources happening in the future.
Bird Flu.
5,113 nuclear warheads say there ain't a chance in Hell that's gonna happen.
http://en.wikipedia.org/wiki/US_nuclear_arsenal#Current_status
And that's just the ones the US has...
"Good minds? Sheeeit, lemmee hab summa dat ghos' city!!"
" Hence, rear seats are more comfortable, afford more legroom, and offer the latest infotainment..."
This was ALWAYS my priority when I was younger....more "legroom," YEAHHHH!
They didn't really change anything, the chinese are shorter. ;)
Just kidding people, don't hate me.
We are borg; resistance is futile. Corporations could learn a lot by looking at the appeasement strategy before World War II, when the Allied power failed to understand that giving and giving means someone on the other side is taking and taking, until they no longer need you.
"Every car manufacturer that wants to build cars in China has been given to understand... that it must share "New Energy Vehicle" technologies with Chinese partners. The deadline is 2015"
But in the longer term, BMW might create formidable competitors that will try to eat its lunch down the road."
ROFL.
God I'd LOVE to be president sometimes. I'd bustacap on the corpoRAT mofos on THIS side of the world too.
Monster Tariffs on ANY corp not manufacturing in the u.s. and "turn over all blueprints, schematics and code prease...to check for any...."violations."
"Autarchy, bitches"China Clipper, China Beemer. How times change
How much coal can you fit in a 7 series BMW, anyhow?
How much pressure can you put it under? Think trunkful of fake diamonds.
New Chinese import, obese American chauffers.
Just invest in the most promising Chinese manufacturers. Capitalism doesn't know race or nationality.
Don't confuse Chinese manufacturers with capitalists.
"Capitalism doesn't know race or nationality"
neither does a colo-rectal exam
Nor a tumor. Benign or malignant.
not true there are recognized pattersn of different rates of occurence of cancer in different races (hereditary) and nationalities (local effects of toxic environment)
I hope the Chinese don't throw these "capitalists" under the bus as well. /sarc
If China can demand technology transfers from companies why can't governments demand that all Chinese iimporters conform to western labor and environmental laws?
Because you can fit the sum total conscience of multinational corp CEOs in one shipping container.
Because even western capitalists loathe the same laws? Could it be?
Capitalist loathe free clean air and clean water. Polluted air would give them so many new markets to sell air cleaning and remediation equipment, dirty water as well.
Whats a few tumors between friends, especially if it means bigger bonuses for management.