Saturday, May 30, 2009

Geely vs Chery? It's not so simple.

The car buffs at China Car Times, one of my favorite sites for learning about the latest car models being manufactured and sold in China, have posted an editorial pitting Geely against Chery and proclaiming Geely the winner.

(Geely and Chery are two of China's largest manufacturers of domestic brands.)

While I'm not an expert on the inner-workings of either company, I have seen the same profusion of models that erupted from both companies at this year's Shanghai Auto Show. China Car Times (CCT), however, strongly criticizes Chery for this shortcoming, while failing to recognize that Geely is guilty of the same problem. (Both companies are criticized in this article at Automotive News China).

Furthermore, it isn't clear why CCT finds Geely so fascinating, aside from its praise of Geely R&D Chief, Frank Zhao. Perhaps I should know who Frank Zhao is, but CCT could have at least explained to us why this gives them an advantage. Who is Chery's R&D Chief, and why is he (or she? -- who am I kidding, it's a he) inferior to Mr. Zhao?

One of the commenters to CCT's article (for whom CCT obviously bears no responsibility) quite astutely suggests that Geely's advantage lies in the fact that it is private, whereas Chery is state-owned. And as we all know (a phrase that should make any reader cringe) the private sector is better at running businesses than the government.

I would like to suggest that, in China, the lines between public and private are not are as clear as they are in many other countries. Yes, China does have a nominally "private" sector, but in reality, nothing in China is truly "private". In China, the government still owns all land, and is therefore everyone's landlord.

Li Shufu may be Geely's controlling shareholder, but Geely is just as beholden to the government of Zhejiang Province as Chery is to the City of Wuhu. Yes, Geely has more flexibility, not because it is private, but because it is headquartered in one of China's richest provinces. The government of Zhejiang doesn't care where Geely builds factories, but if it did, they would all be built in Zhejiang. Geely would have little choice in the matter.

BYD is also private, and it has factories outside of its home city of Shenzhen. Shenzhen, as it happens, is China's richest city.

Great Wall is also private, and all of its factories are in its home province of Hebei. Why? Though I cannot prove this, I would suggest that it is because Hebei needs those factories there. Hebei's GDP per capita is roughly half that of Geely's home province of Zhejiang.

If one is going to study cars in China, it is simply impossible to ignore the politics. I suppose the same goes for the US too -- since GM is now an SOE.