Chinese investment in Pakistan has undoubtedly earned its stripes as the biggest FDI into the country yet. Even as non-Sino FDI has dwindled, Chinese investments have grown by 37 percent in 11MFY18, and its share in total FDI has reached 61 percent during the fiscal year. While most of the incoming inflows are in infrastructure, energy and transport network projects, it is only fitting that Chinese automotive giants are slowly circling the fields, interested in joining the spoils in the promising, almost transcendental demand in the automobile industry in Pakistan. If all goes well.
Some Chinese players in the commercial vehicle segment have already been in Pakistan in joint collaboration with local partners. FAW with Al-Hajj group’s partnership materialized during the 2006-07 period when the first auto development policy was introduced. Though the policy failed due to major economic challenges the country was facing, FAW stuck around and weathered the storm. Today, FAW has doubled its commercial vehicle capacity, has a high-selling pickup FAW carrier which gives Suzuki’s Ravi a run for its money and has also started locally assembling V2, a compact hatchback the company was at first importing, priced lower than the popular Cultus.
Other Chinese companies like JAC motors entered into a distribution agreement with local companies like Afzal Motors to import commercial vehicles like trucks, buses, and prime movers. Meanwhile, Sinotruk international, or otherwise known as China National Heavy Duty Truck Group specializing in heavy dumpers, tankers and trailers has had a local authorized seller with Dysin Automobiles. Ghandhara Industries has been selling Chinese Dongfeng locally, and recently entered into an agreement to do the same for JAC motors.
Now with the new auto policy, a Chinese automobile manufacturer, Jenbei is coming into Pakistan. The Chinese player is owned by another group that owns a 50 percent stake in BMW alliance in China. Jenbei Pakistan will import and later on enter into assembly over the next three years bringing a range of vehicles including minivans, minitrucks and passenger cars. Meanwhile, Master Motors that has already been distributing Foton and Mitsubishi commercial vehicles was awarded a Greenfield status under the auto policy. The company has now entered into a joint venture (JV) deal with Changan Automobiles, one of the top four Chinese automotive manufacturers. This Chinese giant has international joint ventures with Ford, PSA, Mazda, and Suzuki much like FAW that has had JVs with Volkswagen, Audi, Toyota, Mazda, and General Motors. The Changan plant in Karachi will have a capacity of 30,000 units on double shift and the management intends to start production in Dec-18.
While Pakistan’s race to transform into an automotive manufacturing country is in its very initial stages, China has been in a race on a different league altogether. It has grand ambitions to becoming a major automobile player in the world and gain a foothold in most developed economies. But though China has positioned itself in global value chains and many auto giants have chased the low-cost labor and inputs in China, the country suffers from a brand problem, in that it has none. In most economies, including Pakistan, Chinese goods are equivalent to cheap and poor quality. And while there are a range of quality any country produces, that is how Chinese products are identified most of the time.
This is why China has been quick to invest and enter into JVs with global players, essentially throwing money at its problems. It has been building plants in different countries, and has been acquiring foreign companies or entering into JVs. It has also invested into dying or troubled plants like the French Peugeot and Citroen. Europe and North America remain primary markets as this where the potential lies to gain key knowledge of advanced technologies, especially in the autonomous and connected cars of the future. At the same time, JVs also help in building market presence that Chinese automakers have not been able to create for themselves.
In that sense, investing in Pakistan is just a way to capture a burgeoning market, and nothing more. What Pakistani companies selling Chinese vehicles will have to work on is branding and slowly erasing the consumer’s association of Chinese brands with inauthenticity and low quality. While Chinese vehicles may have been successful in commercial vehicle, and motorcycle segments, passenger cars is where they will have to hustle most. With Hyundai, Kia and potentially Renault in the market, Chinese cars may find little traction to none, unless they go significantly low-priced and do not compromise on quality either. Even then, this will be – or should be—a huge marketing undertaking.
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