Return to 1958 and build a century-old giant

Chapter 856 Automotive Parts Industry Layout
Yang Wendong was well aware of how much importance the mainland placed on foreign exchange throughout the 80s, and to think that he could earn foreign exchange in China at that time was wishful thinking.

Whether it's automobiles or other projects, Yang Wendong's main goal in investing is to open up the market and cultivate customers now, so that when the foreign exchange issues are resolved in the 90s, that's when he'll start making big profits.

You can see this from Volkswagen. They promised not to earn foreign exchange in mainland China in the early days, but after the 90s, they were able to earn tens or even hundreds of billions of dollars every year. Without the mainland market, the entire Volkswagen Group would probably not even be able to compete with the Hyundai brand in the future.

Moreover, regarding the car project, he originally intended to expand the market in Asia. He invested heavily in car retail stores in the early stages, not only to enjoy the profits from rising real estate prices, but also to develop his own car business.

Currently, the only brand under its own name is Mini, and it still has to ship goods from the UK. Although roll-on/roll-off cargo ships exist in this era, Mini does not have such a large transport capacity. Moreover, Southeast Asia is mostly islands, and each country has a limited number of Minis. This results in extremely high sea freight costs for goods shipped from the UK, making it impossible for Minis to compete with Japanese cars. In addition, Minis' brand recognition is also inferior.
Therefore, if you want to succeed in the Asian automotive market, you must utilize Asian production bases, namely inland China.

This allows them to expand into both the domestic and Southeast Asian markets, both of which are very new and offer opportunities for any brand. While Japanese cars have also begun to enter Southeast Asia, the main force is still the United States, given that Americans have money and there are issues such as islands when shipping Japanese cars to Southeast Asia.

This business strategy also solves the foreign exchange balance problem that is difficult for most people to solve, which eliminates the biggest worry for projects and allows them to proceed quickly.

"1000 stores? Mr. Yang's business is truly impressive." Director Zhou and the others were also taken aback.
If a store sells one or two cars a month, that adds up to twenty or thirty thousand cars a year—a number that exceeds the annual production of cars in Shanghai.

“Not yet, but it will be soon. Actually, I also have retail stores in the United States. If the production cost in mainland China can be lower than in the UK, then it is possible to export to the United States,” Yang Wendong added.

He made a promise to the British government to preserve jobs, but that's about it. If one day his strong sales resources overseas can increase Mini car production, he will definitely transfer orders to the mainland for production.
He's not going to create jobs in the UK; he's just asking for trouble.

Director Zhou and the others immediately beamed with joy and said, "That would be wonderful."

"If we want to reduce costs even further, we need to localize the parts, which requires the mainland to meet our quality requirements," Yang Wendong continued.

In any industry, localizing component production is the best way to reduce costs.
For example, in the past, when companies like Volkswagen and Toyota monopolized the mainland automobile market, they deliberately produced many parts in their own countries. This enabled many small towns in Germany and Japan to have small businesses, and the people in those towns inherited their jobs, which led to the wonderful life of "Yilin". Many people in Europe and America did not need to go to big cities to work.
Later, with the rise of domestic car brands like BYD, German and Japanese brands couldn't compete and had to rely on domestically produced parts. As a result, many small and beautiful European and American companies had to go out of business.

Director Zhou nodded and said, "Mr. Yang, you can rest assured on this point. We also intend to localize the parts. This was a requirement we made in our negotiations with Volkswagen."

"I know that, but I had someone investigate once, and the results weren't good," Yang Wendong shook his head and said, "The cars produced at the Shanghai Automobile Factory are riddled with problems. Many parts are substandard, and they're assembled using brute force; this is very common."

At that time, many domestic car brands were still operating on a manual basis, which was far behind the automated production of overseas.

At the same time, the components are also very unstable, and there is no standardized production process;

Let alone manufacturing cars, Yang Wendong wouldn't even trust someone to manufacture home appliances;
Director Zhou and the others were embarrassed for a moment, and said, "Mr. Yang, we are also trying to make changes, but all of this will take time."

Shanghai Automotive is the largest car brand in China, and they have all ridden in these cars; indeed, these cars frequently have problems.

It's normal to get used to something, but after driving some imported cars from abroad and riding in them for a while, I just can't go back. They're not only more comfortable, less prone to breakdowns, and more powerful, but also more fuel-efficient.
This is why China is willing to spend money to import cars. Even if it costs foreign exchange, in the long run, the fuel savings and increased work efficiency make it worthwhile. Of course, the best way is to introduce foreign car brands and then have them produced domestically through joint ventures, which saves the most foreign exchange.

Yang Wendong continued, "It's not just about time, it's also about foreign exchange, right? Auto parts are all from the machinery or chemical industries, so they need overseas equipment and technology. You might even need to send people out to investigate, right?"

"Yes." Director Zhou nodded. The automotive industry is too big and too broad; improving it is extremely difficult.

The negotiations between Volkswagen and the Chinese mainland have also been controversial regarding the localization of auto parts production. This is because the German side has visited many domestic auto parts companies and is not optimistic about the quality of the products that these factories can produce.
However, the mainland has localization and foreign exchange balance requirements, so it is impossible to continue importing and assembling from Germany using the CKD model. This is a major point of contention between the two sides, and they cannot reach an agreement.

Yang Wendong said, "I also have a solution to this problem. I will invest in some domestic auto parts companies, and then the joint venture will use my foreign exchange to purchase equipment, technology, and even bring in technical personnel to alleviate these problems. What do you think?"

The benefits of doing this are numerous for him.

On the one hand, the future car market in mainland China is too big. Even if Mini has gained an early advantage, its strength is far inferior to that of Volkswagen, Toyota and GM. In any case, the mainstream market in the future will inevitably still be them. However, these companies will not invest in parts companies. At most, they will invest in a core engine or transmission. Other parts can only be produced by local companies. This is actually a very huge market.

Internationally, there are many companies in the automotive industry among the Fortune Global 500, but there are also many auto parts companies. Some of the best auto parts companies can even challenge the big automakers. If you can establish a presence in the mainland auto parts market early on, you can reap huge rewards in the future.

Secondly, since the main production location for its own mini-programs will be in China, it will inevitably need to localize to reduce costs in order to sell well both domestically and internationally. Thirdly, large enterprises in this era have factories located in prime locations in first-tier cities. After investing, they also have a share in the land, which represents huge profits. It should be noted that it is very difficult for foreign capital to hoard land in China on a large scale, not even Hong Kong capital, unless it is a large-scale real estate project specially approved by the central government.

In the early days, joint ventures with local factories were arguably the only option. This was because most people in mainland China at that time did not care about land and never imagined that land would become more valuable than the factories themselves in the future, nor did they think that land would be marketized.

Director Zhou asked in surprise, "Mr. Yang, the automotive industry involves so many factories, have you invested in them all?"

“That’s not necessary. I’ll only invest in the important ones. As for the less important ones, I can support them. For example, as long as the requirements are met, I can arrange for a bank in Hong Kong to provide loans and foreign exchange, etc.” Yang Wendong said.

Hang Seng Bank faces significant challenges in its development in Southeast Asia, struggling even with the support of its own industries. Yang Wendong is powerless to change this, given that even a giant like Citibank struggles in many countries, despite having American backing.
So, taking advantage of the current reform and opening up, we can promote cooperation between Hang Seng and the domestic market, especially for projects that require foreign exchange. Not to mention the future, at least in the 1980s and 1990s, we can still make a lot of profits and open up the market. As for when the domestic market is not short of foreign exchange after the 21st century, we can talk about that later. We can also invest in domestic private banks or even the four major banks.
As for overseas markets, he still plans to acquire a suitable bank in the future, such as Standard Chartered, but it's not the right time yet, so there's no rush. Things will be done step by step.

"That would be wonderful." Director Zhou and the others' eyes lit up. This way, many problems faced by small factories could be solved.

At this moment, another deputy director surnamed Yu asked, "Mr. Yang, where do you plan to locate this joint venture automobile factory?"

This question immediately drew a lot of attention, because it's important to know that the entry of such a car company into any major city would greatly benefit the local economy.

Yang Wendong said: "Currently, the domestic automobile industry bases are located in the Northeast, Beijing, Shanghai, and near Guangzhou. Considering export demand, the Northeast is not being considered for the time being."

I'm not sure of the exact locations of the other cities yet; that requires investigation by professionals.

In the future, most of the major joint venture car companies in mainland China will cooperate with domestic companies such as FAW, SAIC, and GAC, because these three cities have the most developed automotive industry. Of course, later other cities caught up, and these companies also went to different cities to open factories.

Overall, the strongest are still Yanjing and Shanghai, while Guangdong is much weaker.

The future Volkswagen will be based in Shanghai, so Shanghai will be its first choice. At least it can establish its industrial chain in Shanghai, making it easier to enter SAIC Volkswagen's supply chain. Once it seizes this opportunity, it can also enter the industrial chains of domestic brands like Toyota, Honda, FAW-Volkswagen, and American automakers. The profits it can earn may even exceed those of the Mini car itself.
Of course, Yanjing is also an option; the two places are not much different.
“That’s fine. I’ll arrange for these cities to compile information about their industrial chains and send it to you,” Director Zhou replied.
In fact, this kind of information has been available for a long time. When negotiating with the public, they will also conduct various investigations.

“Okay.” Yang Wendong then added, “There is another big problem: patent law. Once Mini’s technology enters the domestic market, it will belong to us. Our partners will need to pay to purchase it, while other manufacturers cannot simply use it as they see it.”

This is a rather troublesome issue. China doesn't have a patent law yet, and Volkswagen is facing significant disputes in this area. Furthermore, other foreign companies outside the automotive industry also have reservations and are hesitant to invest, fearing that their technology will be copied by other companies once it enters the mainland, leaving them with no recourse.
"This..." Director Zhou gave a wry smile and said, "Mr. Yang, we are indeed aware of this problem, but currently there are no relevant laws in China. If legislation is to be enacted, it is not something we can decide, and the legislative process would take a very long time."

Yang Wendong shook his head and said, "If that's the case, then in the early stages we can only use CKD imports for assembly. But if that's the case, then it will be difficult to guarantee the balance of foreign exchange."

Everything else is negotiable, but he absolutely cannot accept the absence of patents and copyrights. You have to understand that the development of his entire industry was based on the early patents for sticky notes.

While Mini's technology may not be the best globally, it's still quite advanced in China. If their cars were to be copied by others as soon as they entered the market, especially before patent law came into effect, it would be a very complicated situation.

In the early days of reform and opening up, local protectionism was very strong, and Yang Wendong did not want to get involved with any locality in this way.

“Mr. Yang, CKD assembly is possible in the early stages. As for the foreign exchange balance issue, according to you, it can be settled later, so it shouldn’t be a problem.” Director Zhou thought for a moment and said, “How about we cooperate as soon as possible and localize the production of parts as soon as possible? That way, the foreign exchange problem will be solved.”

“But this still won’t solve the patent issue.” Yang Wendong shook his head, and after a while said, “How about this, it seems we can’t reach an agreement on this issue today. Let’s discuss it again during the subsequent negotiations. If there’s no patent law, let’s see if we can temporarily circumvent some issues through a contract, what do you think?”

The negotiations with Volkswagen have lasted for six years. Even if Yang Wendong wanted to speed things up, it was impossible to reach an agreement in just a few days.

The main reason for being here today is to resolve the most tedious and crucial pricing issues, such as foreign exchange balance and the localization of parts. Volkswagen has been arguing about these issues for a long time, but for them, the core of their future automotive industry lies in China, so these are not problems for them.
But patent law is different. It's impossible to get the mainland to legislate through a few meetings right now, and he knows that the patent law will be established in 84. So he just needs to find a way to avoid early problems.

This kind of offensive work is best left to Volkswagen. As an international automaker with the German government behind them, they have the capability to do it, so it's not suitable for me to do it myself.

PS: Please give me a monthly ticket
(End of this chapter)