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BMW Moves Into High Gear in China

BMW became the latest heavyweight investor on the Chinese car market this week with the opening of its own factory in Shenyang, making China one of the biggest foreign production sites for German automakers.

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Beemers for China.

The Bavarian-based BMW group counts among the latecomers on the scene when it comes to setting up shop in the burgeoning Chinese auto industry.

While fellow German carmaker Volkswagen began production in China in the mid 1980s and last year sold more cars in China than in its home market, BMW only formally opened its first production facility this week in Shenyang, the capital of Northeast China's Liaoning Province.

A joint venture with Brilliance China Automative Holdings Ltd, the €450-million plant, which will produce both BMW 3-series and 5-series models, boasts a manufacturing system and technology as advanced as those found in other BMW factories around the world.

BMW and Brilliance each hold a 50 percent stake in the BMW Brilliance Automotive Co. Ltd. joint venture, which was set up in July last year.

"A milestone"

Helmut Panke, BMW CEO, said the plant marked a defining moment for the company. "To build one's own production plant for the premium class deep in the Chinese heartland is a milestone to make Asia, after the U.S., into the largest overseas market," he said.

Panke stressed that BMW had learned from past experience that investing in local markets usually paid off. "Just look at what we've achieved in the U.S. where we decided to build a plant in the early 1990s -- ten years on we've quadrupled our sales, which makes it clear that investing directly brings totally different perspectives within a market," he said.

"You're seen as a responsible investor, as a part of the economy and society. We expect that in China too and in that sense Shenyang is the second phase in the internationalization of the BMW group."

The Shenyang plant aims to produce around 30,000 BMW 3-series and 5-series models in the medium term, employing about 3,000 staff.

Brilliance China Automative Holdings Ltd Chirman Wu Xiao'an called the new plant a milestone for his company. "Our partnership with BMW is a crucial step for Brilliance," Wu said. "It signals the success of both our strategic partnership and the global vision of our company."

Foreign carmakers queuing up

China's explosive growth, which has turned its car market into the fastest-growing in the world, has attracted foreign automakers in hordes.

Foreign carmakers led by Volkswagen have invested more than $12 billion in China, with 13 automakers setting up 20 joint ventures.

This week one of China's big three car makers, Dongfeng, which has a joint venture with Nissan and another with Peugeot Citroen, said it was thinking of setting up a new one with Renault.

French carmaker Peugeot confirmed it would double annual output to 300,000, while German Audi began importing its A8 saloon at an asking price of $232,000.

Last year Chinese car sales amounted to 2.1 million. The Chinese Association of Automobile Manufacturers (CAMA) forecasts they will hit 5m by 2010, the third-largest in the world behind the U.S. and Japan.

"The Chinese market is developing extraordinarily dynamically. There's already a market for two million cars, in 2002 it was only one million. That shows how robust the growth is," Panke said. "And we think that even the premium segment will develop strongly in the next years and then we'll have to see whether we need to broaden the production."

DaimlerChrysler next in line

For now the majority of the car components for the Shenyang plant will be imported and the cars will be assembled under the guidance of 50 German experts. However the factory will soon aim to localize about 40 percent of the production process.

BMW has already had a taste of what the booming Chinese market has to offer.

In the first four months of this year the BMW group saw sales growth of 41.4 percent for its three brands -- BMW, Mini and Roll-Royce -- in China produced locally by the joint venture using existing assembly lines. BMW is thus the only carmaker in the premium segment that produces locally in China.

It's an example that others are hoping to emulate. Last month DaimlerChrysler signed an agreement with visting Chinese Prime Minister Wen Jiabao in Germany for the manufacturing of Mercedes limousines of the C and E-class.

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