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Asia Weekly
The Japanese Art of Manufacturing in ChinaWeek Ended: June 19, 2009 The Chinese auto industry is alive and well. Chinese passenger car sales in May rose 46.8% year-on-year and annual auto sales are expected to exceed 8 million this year, according to most recent month-end data. Rapid economic growth in the last 30 years drove this trend along with the rising income of the Chinese middle class. However, this trend is fairly recent, as just under 2 million cars were sold in China as late as 2005. At that time, there were about 200 auto companies in China with a limited and inefficient supply chain. As a result, cars were very expensive not only relative to local income levels, but global levels as well. For example, a Honda Accord cost the equivalent of over US$30,000 in China, compared to the low-to-mid US$20,000 range in the U.S. Today, cars are much more affordable, as prices have fallen substantially since then. One of the main reasons Honda was able to successfully lower its prices was due to huge improvements in the supply chain for China’s auto industry. These improvements were enabled by the emergence of companies like the auto parts manufacturer I visited in May in the outskirts of Shanghai. With ample technical support from some of Japan’s leading auto parts companies, this company's entire plant operated like a Japanese plant. The founder of the company is well versed in Japanese manufacturing culture, as evidenced by the six codes of ethics displayed prominently throughout the plant. As the picture shows, these codes basically direct workers to operate the plant in a clean and safe environment. The company’s plant operates in three shifts, five days per week and delivers close to 70% of all their products to Japanese plants in China. The plant manager informed me that they do not sell parts to local Chinese auto companies. The company is making low value-added products at the moment, but they are looking to expand their product offerings to move up the value chain. Although the United Auto Workers Union in the U.S. continues to resist importing auto supplies from China, the trend is pretty clear that global auto companies are endeavoring to source parts from China as much as possible. Japanese companies are no exception. In fact, I believe that Japanese auto assemblers should benefit most from lower cost parts produced in China due to their proximity and relationship. Taizo Ishida As of 3/31/2009 Honda Motor Corp. Ltd represented 2.9% of Matthews Japan Fund. View the Fund's complete holdings »
Single country and sector funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific sector or geographic region. Investing in small- and mid-size companies is more risky than investing in large companies as they may be more volatile and less liquid than large companies. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews does not accept any liability for losses either direct or consequential caused by the use of this information. |
