After years of breathtaking growth, it seems the honeymoon for China's car-makers is over. Profits in the car-making sector fell nearly 63 per cent year on year in the first half of the year.
A bad six months for the mostly state-controlled industry, which recently overtook Germany as the world's third-largest vehicle market, even though sales climbed 10.6 per cent - this is well off the 29 per cent pace of the same period a year ago.
Government data reflects a rash of gloomy corporate figures in recent weeks. Shanghai Automotive (SIAC), owner of a fifth of GM's largest venture in China, unveiled a more than one-half drop in second quarter earnings and warned it may post a loss for the first nine months of the year.
Ford's main Chinese partner, Chongqing Changan, posted a 77 per cent drop in second-quarter earnings as higher costs and stiffer competition cut profits.
Changan Auto, China's largest minivan maker and fourth-largest car-maker, also forecast its net profit would dive more than 50 per cent in the first three quarters of this year.
However, news in the rear view mirror may appear gloomier than it actually is - the slowdown was well flagged and comes after remarkable growth in the past few years.
Growth in car sales in China slowed dramatically to just 15 per cent in 2004 after a near-doubling in 2003. Since the middle of last year, the government has hit the brakes on soft car loans to try and cool the rapidly overheating economy. Analysts now expect 10-15 per cent growth this year as the credit squeeze keeps China's would-be car buyers wary.
Some comfort for the car-makers came in figures from the China Automotive Industry Association - exports jumped 44 per cent in the first six months to €3.9 billion.
In 2004, the Chinese exported around 100,000 cars, mostly to Southeast Asia and Africa. But many big names are building in China for export and Chery Auto, which sells small, low-budget cars for around €3,500, is planning to sell in the US in two year's time.
China's export plans have been met with scepticism. Analysts doubt if they can compete with the big players on quality and technology. Chinese car-makers certainly have to overcome the stigma associated with buying a car from China. But that's doable - ask the Japanese or, more particularly, the Koreans.
Car analysts say that the moves to export are driven by too much capacity at home.
A Dutch importer, LVMC, is having great success with the Landwind, a sport-utility vehicle made by Jiangling Motors in China which has become the first ever Chinese car to have gone on sale in Europe.
LVMC is offering the Landwind with a 2.8-litre diesel engine supplied by GM or a 2.4-litre petrol engine supplied by Mitsubishi, and has already sold several hundred Landwinds at around €17,000 and is geared up to sell many more. With this in mind, LVMC is taking the car to Frankfurt for its German launch.
As well as the Landwind, the Geely will also show at Frankfurt next month, after appointing a Portuguese retailer to distribute its cars in Iberia and will probably look for other partners in Frankfurt to sell its range of small and medium-sized sedans and hatchbacks, as well as the China Dragon sports car.
The third Chinese car in Frankfurt will be the Zhonghua sedan, which is built by BMW's Chinese partner, Brilliance Jinbei, and will be shown by Euro Motors, Automotive News Europe reported.
The world's big car-makers including Ford, Nissan and Toyota are investing €15 billion to triple annual production in China to seven million cars by 2008 and there are fears of a glut.