China forces ASEAN's auto industry to modernize

China forces ASEAN's auto industry to modernize

Martin Abbugao, Agence France-Presse, Singapore

Southeast Asia's auto industry is stuck in low gear because of
isolation and fragmentation and risks biting the dust as
liberalization turns China's vehicle market into a sleek, well-
oiled machine, experts say.

Some industry players and analysts say ASEAN should tap the
huge potential for inter-regional trade and ride on the opening
of the Japanese market as the region cruises the liberalization
freeway.

Others however say there is little room for complementarity
and that the key to being competitive is forging alliances with
bigger players, focusing on products where ASEAN has a
comparative advantage and speeding up the region's integration.

A paper presented at a recent meeting of Asia-Pacific
transport officials and manufacturers here said liberalization in
China is forcing its "fragmented and inefficient" auto industry
to restructure "into a more modern and technologically global
supplier."

"China is a major market in the region and its adjustments
will inevitably affect ASEAN, either in terms of trade between
them, or in third country markets," said the paper prepared by a
research group of the independent think-tank Pacific Economic
Cooperation Council.

The ASEAN Free Trade Area (AFTA) that will bring down tariffs
on most goods traded in the region to a maximum 5.0 percent by
next year is expected to boost inter-regional trade which is
currently at negligible levels, the paper said.

Current tariffs range from 10-40 percent for cars and
components in ASEAN's four biggest markets -- Indonesia,
Malaysia, the Philippines and Thailand.

In 1999, only 2.19 percent of automobiles made in the region
were traded within the Association of Southeast Asian Nations
(ASEAN) which also covers Brunei, Cambodia, Laos, Myanmar,
Singapore and Vietnam, the paper said.

Europe was the biggest market, accounting for 39.38 percent of
ASEAN automobile exports, followed by Australia and New Zealand
with 24.72 percent, the Middle East and Africa with 11.32 percent
and East Asia with 10.73 percent.

For components, inter-ASEAN trade accounted for 11.26 percent,
with the biggest outside markets being North America and Japan at
22.26 and 20.46 percent respectively.

Thailand has focused on manufacturing pickup trucks and
Malaysia the mid-sized car Proton. The Indonesian and Philippine
markets are dominated by the light commercial vehicle segment.

Specialization is also evident, with Thailand focusing on
ignition wiring sets, engines and engine components, and Malaysia
on sound systems, oil filters and brake parts, the paper said.

Indonesia specializes in tires, filters and sound systems,
while the Philippines has its hands on ignition wiring sets, gear
boxes, radios, electronic accumulators and car bodies.

However, Graeme Maxton, Asia-Pacific director for global
consulting firm Autopolis, disagreed, saying ASEAN countries were
mostly competitors.

"Malaysia makes cars, Thailand pickups and Indonesia majors on
the Kijang (a utility vehicle). Now you could say 'that's good,
they complement each other so there can be trade,'" Maxton said.

Maxton also said there was little future for inter-regional
trade because while governments see the potential, each country
wants to be the hub.

The PECC research paper however said that despite Malaysia's
decision to delay the opening up of its auto sector to 2005,
ASEAN members "are now very close to a major liberalization in
inter-regional automobile and component trade".

ASEAN could also take advantage of Japan's new strategy to
outsource its needs for auto parts and components, the paper
said.

Mitsubishi is aiming to outsource 95 percent of its component
production after its partial acquisition by DaimlerChrysler in
July 2000, it said.

Suzuki, which currently buys only one percent of parts from
overseas, should increase foreign procurements after joining
General Motors' worldwide purchasing network, it added.

Manufacturers are pinning their hopes that AFTA can lead to a
more integrated ASEAN market.

"The only way it can increase its competitiveness is to
increase the (pace of the) liberalization process for AFTA faster
than it's doing," said Stephen Collins, president of the
Automotive Trade Policy Council, which represents US car
manufacturers.

"It's not happening fast enough," he said.