Back in April, ebullience was bubbling over the world's fastest-growing car market, making Dongfeng, which has ventures with Nissan Motor and PSA Peugeot Citro, confident it could raise US$1bn from listing.
How times change. Over-production has depressed car prices, hurting profits, in turn knocking shares of automakers, which have fallen by as much as 58% since April. China's total car sales almost doubled in 2003, but slowed dramatically in 2004 amid government efforts to rein in credit and cool the economy.
Volkswagen, for example, announced 2004 sales at its leading China venture, Shanghai Volkswagen, were more than 10% lower than in 2003. A company executive told Reuters 355,000 cars were sold in 2004, against 2003's 396,000, in line with company expectations. In May, VW said it wanted to see China sales of more than 800,000 units in 2004.
Margins have also been eroded by sheet-steel prices climbing more than 33% during 2004. Analysts fear Dongfeng may not control how profits and dividends are allocated because of the joint-venture's ownership structure.
Despite the tough market, investment continues apace. Nissan announced a plan to cut costs by building engines with Dongfeng at a new 360,000-engine annual capacity plant in Guangzhou costing US$362m, starting production in 2006. Dongfeng Motor Co, an equal-share venture between Nissan and Dongfeng, will run the factory. The two companies opened the mainland's largest Sino-foreign car JV, with a capacity of 150,000 cars a year, in May. The Guangzhou facility produces Bluebird, Sunny and Teana models.
Nissan is not the only Japanese player recognizing China's growing importance. Honda Motor Co, Japan's number three automaker, credited brisk China sales for lifting worldwide sales to 3.4m units in 2004, up 8% on 2003 – the first time its car sales topped 3m, officials said.
Honda's motorcycle sales increased to 12.5m worldwide in 2004, up 17%, against 2003's 23% rise.