Private firm to enter auto industry

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Last updated at: (Beijing Time) Wednesday, March 10, 2004

Private firm to enter auto industry

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Hejia Group, a Sichuan-based private enterprise, is entering the lucrative auto parts and components industry and plans to list its business in the United States, according to its President Xia Chaojia.

The move makes Hejia another auto-related Sichuan enterprise, following China's top liquor producer Wuliangye Group, gearing up to enter the bullish car industry.

"We have started to establish our own auto parts industrial park since last year, and we are preparing to list the business in the United States this year," Xia said.

Hejia, with agriculture and valve production as its traditional mainstays, has invested a total of 500 million yuan (US$60.5 million) into establishing a 20-hectare industrial park in the province's Xindu area.

"This is only the initial investment," said Xia, who is also a deputy to the 10th National People's Congress, although no further details were made available for the time being

Hejia seemingly has long been prepared to elbow its way into the auto market and develop it into a new profit engine. It has already been engaged in vehicle repairs for some time, and the ambitious firm also set up a distribution centre for Chinese auto parts in the United States last September.

This will make it easier for Chinese auto parts to be imported into the United States.

Analysts say Hejia's bold entry into the profitable auto sector is a "good" attempt, but they cautioned the company should be wary of the challenges ahead to ensure that the investment is truly "worthwhile."

"China's car sector has become a new magnet (for investors)," said Jia Xinguang, a leading auto market analyst with the China National Automotive Industry Consulting and Development Corp.

China produced a total of 4.4 million cars in 2003, and became the world's fourth-largest car producer. The average profit rate of the sector could stand at 20-30 per cent, according to observers.

Auto parts supply is also expected to surge in 2004 to cater to rising domestic and international demand.

"(So) it's easy to understand why Hejia is elbowing its way in," Jia said.

However, as a newcomer, Hejia will find it difficult to stand out among thousands of auto parts makers on the world's fastest-growing market, Jia cautioned.

"The low-end market is competitive and delivers low profits, so Hejia should stick to a high-end approach," Jia said. "To beat veterans, a newcomer should start at a higher technological level."

Seeking partnership with international car giants could be a good way to enhance Hejia's technological capacity, helping it win a better position.

Jia also advised the fledgling player to conduct acquisitions and mergers when the time is right.

"This will help the firm mature and shape its sales network. It's better than establishing such a network from scratch," he said.

Hejia has been making efforts to diversify its business scope since it gained the leading position in valve manufacturing.

Before making inroads into the auto parts sector, the company has explored such sectors as pharmaceuticals, transportation and aviation, real estate, information technology and trading.

"Great achievements have been made in all these sectors," said a proud Xia.

Source: China Daily

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