Chinese carmakers are planning to open assembly plants in Ghana in Africa so that they can export assembled cars from Africa to markets in Europe and North America. The move would take pressure off of direct exports from China, and would benefit from duty-free status for imports to those two major markets.
While Volkswagen and General Motors have been raising their auto production capacity by major amounts in China, their Chinese joint venture partners, including SAIC (Shanghai Automotive International Inc.), are looking for other markets to assemble Chinese-made car kits for export. The difference in strategy is that while VW and GM are looking at the Chinese domestic market for sales, their Chinese partners are looking more closely at other countries which they can export from into the markets of North America and Europe.
The best country for auto assembly in Africa is Ghana as the Chinese see it, and the Chinese companies are aggressively planning on setting up assembly plants in that west African country. Besides a quality labor force, exports from Ghana qualify for duty-free import status to both NAFTA and EU countries.
The Chinese are pushing for special incentives from the Ghana government, including 5-10 year income tax-free status. Current Ghana taxes on car parts imports are 10% higher than those for cars. If the Chinese assembly plant investments are to make economic sense, they will have to push for revisions of these current regulations.
Some Chinese vehicles have already been sold in Ghana, where they have acquired a reliability for low prices and reliability.
While auto sales in China have gone up more than 50% annually in the past three years in China, they have taken a tumble since May because of government credit tightening. As a result, there are large auto inventories sitting all over China.
The Chinese companies also want to wrest the African market for Japanese second-hand cars away with their low-cost Chinese models. Currently, the African markets are dominated by Japanese second-hand cars. Because of Japan's stringent standards for auto license renewal, many well-maintained Japanese cars have to be sold annually in Africa. The Chinese believe that if they can capture the African markets away from the Japanese second-hand market, then their cars will have a reputation for low prices and good quality.