Blog: Dave LeggettChina's 'correction'

Dave Leggett | 4 August 2004

Let's get a few things in perspective re China. The government is taking action to cool down demand in an economy that is growing at a rate that looks a little too fast and risks overheating (or rising prices). The auto industry is moving from a position of protection, regulation and tight supply to a more deregulated, higher demand market, but it's higher demand with some excess supply. It's not all that suprising to some of the 'China-watchers' I speak to. China has a history of stop-go economic performance and the stampede into China that has chracterised the last few years was always bound to create conditions for the sort of price war that is going on now.

Does it mean China strategies are therefore in tatters? Not exactly. Volkswagen will take a hit on margins - already is - and some carmakers and suppliers will certainly find conditions less favourable for the next few years than they may have assumed in their business plans. But that's business. The eventual winners will be those who know how to adapt to rapidly changing conditions. Long-term prospects remain very solid. Volkswagen's loss of share and margin is pretty inevitable, but VW has been around in China for a very long time. That experience will be invaluable in the choppier waters ahead and some of the newer guys on the scene may be the ones who really get burned.


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