Blog: Dave LeggettChinese whispers

Dave Leggett | 21 April 2006

As I have found myself saying to people on a number of occasions in the past, China takes a bit of understanding and sometimes there is more going on under the surface; indeed, the surface may be downright misleading at times. Conventional business logic and practices sometimes go out of the window. And there is still the hidden hand of state support at work.

I've just taken a call from a chap with supplier industry connections in China who says that Volkswagen's JV with FAW in Changchun (VW has two and this is the smaller one, the larger one being Shanghai-VW) is stony broke. I'm told that it cannot pay suppliers and they've stopped supplying; car production has halted. The situation has apparently been going on for a few days now and I've got someone looking into it. As far as I - or my caller - can ascertain, this news has not been reported anywhere in the international media yet.

But the news - if confirmed - is consistent with other things I have been hearing about the picture in China being lately less upbeat than it is often presented. There's a price war coupled to growing overcapacity. Several other makers are said to be operating close to the edge, financially, but they continue to operate because they get support from the state.

Just don't get fooled into thinking that China's rapid economic growth and growing automotive market makes it a business opportunity in a conventional capitalistic sense. It's more complex than that.


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