China hopes to enhance its position as an exporter of cars and components to become a major export base in Asia. However, the Chinese automotive industry needs to concentrate on improving the quality of its vehicles and components so that it can achieve the ambitious targets it has set itself.

China's intention to strengthen its position as an international centre for the manufacture of cars and components was reinforced with the government's announcement of its aim to increase annual exports to $US100 billion by 2010. China exported cars and car parts worth $4.7 billion in 2003, up 34% from 2002.

However, foreign investment from major component and car manufacturers, which initially are looking at the large potential of the domestic market, will be crucial to achieve the target. The market has been restructuring since the country's entry to the WTO and long established foreign automotive and component manufacturers like Delphi and Volkswagen have expanded their investment. Such companies will now able to see China as a base for their exports.

The rapid growth in vehicle production and sales (4.44 million cars were produced in 2003, a net increase of 2.1 million compared to 2001) has been driving demand for component parts. However, most components are still being imported and strong demand has kept prices high.

Despite China's ambitious plan, its auto industry remains in need of improvements. Joint ventures with foreign manufacturers are an integral part of the plan to increase China's exports. However, the production of components in China is geographically fragmented, and mainly controlled by small local manufacturers where quality is often a concern.

Volkswagen's decision to produce its Polo sedan model in China for export to Australia shows that major automotive players are prepared to invest meaningfully in the country. Volkswagen is also planning to export Chinese-made cars to 84 countries within three to five years, if cost can be reduced and quality improved. China certainly has the potential to be a base for vehicle and parts exports, and it may only be a matter of time before its manufacturing industry achieves the quality control necessary to fulfil it.

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