Foreign bus engine makers are climbing aboard to seize the market as a stringent auto emission standard is implemented
　　
　　
　　CITY ON WHEELS: Buses are a major means of public transit in today"s Beijing
　　
　　While Beijing citizens applaud the implementation of the environmentally friendly Euro III auto emission standard in Beijing this year, domestic engine manufacturers find themselves in an embarrassing situation--they don’t have the know-how to produce the motors. This salient fact is allowing foreign manufacturers to scoop up the lion’s share of the motor business, especially bus engines.
　　“Our country does not have the capability of independently developing a diesel engine complying with the high environmental protection standards. We rely heavily on foreign companies in terms of electronically controlled diesel injection systems,” said Xu Guoming, Director of the Technology Department of Beijing Public Transportation Holdings Ltd. (Beijing Bus Group).
　　Xu was commenting at the public bidding of the Beijing Bus Group, held from March 18 to 20, where an array of foreign as well as domestic bus components manufacturers were represented. Yet top engine makers, the U.S.’s Cummins and Italy’s Iveco, didn’t bother showing up. It seemed they have already secured the majority of orders from the Beijing Bus Group’s decision-makers.
　　Xu explained this was because domestic diesel engine manufacturers still lag far behind the world’s best, adding that technology to make key components, like electronic control systems, is monopolized by foreign manufacturing giants. The engine is without a doubt the most important part of a bus, and the price of a Cummins diesel engine will account for one eighth of the total price of the bus, according to Xu.
　　Qiao Linong, an engineer with the Beijing Bus Group, told Beijing Review that the price of a medium bus may be about 800,000 or 900,000 yuan, however, a Cummins engine costs in the region of 110,000 yuan, the most expensive part of the bus. He said China does now produce bus engines meeting Euro III standards, however, foreign manufacturers provide the key internal parts of these engines.
　　
　　Large market for the taking
　　
　　
　　LET’S MAKE ENGINES: Cummins and indigenous Dongfeng Motor Corp. are in partnership to establish China’s
　　
　　first foreign-invested diesel engine R&D base
　　The implementation of the Euro III standard in China is exciting news for foreign manufacturers competing fiercely for the local engine market. Typical examples are Cummins and Bosch.
　　Cummins sees dominance in the Chinese market as a key part of its development strategy. Statistics from Cummins show the company’s sales revenue in China reached $1 billion in 2004, accounting for 10 percent of its global sales revenue. The company has seen its sales revenue in China hit a new record throughout 2005, and its CEO and Chairman, Tim Solso, is confident that the sales in China will reach $3 billion in 2010. Cummins’ accumulated investment in China exceeded $140 million as of 2005, and China has been its second largest market after the United States. Today, Cummins operates more than 20 facilities in China, including eight manufacturing sites, with nearly all areas of the company’s business represented in China.
　　“China represents Cummins’ single largest international growth opportunity. All of our businesses in China are profitable. And we will continue to invest in China,” said Solso. On March 7, Cummins and China’s Beiqi Foton Motor Co. announced the signing of a feasibility study plan for the formation of a 50-50 joint venture company. This feasibility study is the last step before Cummins and Beiqi Foton enter into a joint venture agreement later this year, with production scheduled for 2008.
　　Franz Fehrenbach, Bosch Chairman of the Board of Management, said his company has a strong focus on China. “We see it as a core country for our business in the entire Asia-Pacific region.”
　　By 2007, Bosch will have invested roughly 200 million euros in the facility for production and development of advanced diesel systems. Between 2005 and 2007, it planned to invest a total of some 650 million euros in China. Bosch sales in China have exceeded 1.2 billion euros and by 2007, the company intends to have more than doubled the sales of its subsidiaries in China to 2.5 billion euros.
　　With the strict implementation of the Euro III standard for all car and bus engines from January 2006 in Beijing and January 2007 in the rest of China, prospects for these companies’ expansion in the local market is promising, said Qiao Linong with the Beijing Bus Group.
　　
　　Playing catch up
　　
　　Euro III is without doubt a nightmare for domestic bus manufacturers. While foreign companies covet the Chinese engine market and are making a fortune from the new regulation, many domestic manufacturers watch as their sales plummet.
　　Experts warn Beijing’s decision to promote the standard is a signal that all cities in China will soon follow suit. As a result, Chinese auto manufacturers are called upon to accelerate their technology innovation so as to reach the Euro III standard or an even stricter Euro IV standard.
　　To help with the situation, some domestic companies are thinking of establishing joint ventures with foreign conglomerates. Shanghai Diesel Engine Co. Ltd. built up a 50-50 joint venture with the Japanese-based Hino Engine Co. Ltd. in July 2005, designed to mass produce high-power diesel engines by using advanced Japanese technology.
　　In spite of the huge profit waiting for foreign diesel engine companies, some people, such as Beijing taxi driver Zhang Jianmin, are not that optimistic about the environmentally friendly diesel engines.
　　Zhang said that the new engines would fail to perform well from an environmentally friendly perspective after a maximum of two years as they are overburdened by the number of bus passengers. “The problem is that while made-in-China engines are unable to reach the Euro III standard, the foreign engines might have not taken the problem of overloading into consideration,” Zhang contended. He predicted that a large emission of pollutants is unavoidable.
　　While this problem does exist, according to the Beijing Bus Group’s Qiao, it is not as serious as Zhang claimed.
　　“Foreign engines are good quality without a doubt. The possible failure of being environmentally friendly will not only be caused by engine wear, but also by problems in other parts of the bus, such as chassis and the transmission system,” Qiao said. He added that to monitor this, the Beijing Bus Group has a compulsory motor vehicle maintenance system for all its buses in order to keep them in top condition.
　　Since October 2002, nearly all of the newly purchased buses by the Beijing Bus Group have had foreign engines installed in an effort to reach the Euro III standard and domestic companies are becoming more active in research and development in this field. They are also asking for a preferential tax treatment by the government.
　　Currently, many of the foreign-owned and foreign-invested companies in China only have to pay a 15 percent business tax and they enjoy various tax breaks. However, domestic companies pay over 33 percent in taxes. In the recent annual session of China’s lawmakers in March, domestic car manufacturers, including Zuo Yan’an, President of Anhui Jianghuai Automobile Co. Ltd., presented a motion for policy incentives in terms of independent research and development of new technologies.
　　Meantime back at the Beijing Bus Group’s public bidding, Xu Guoming indicates an idling bus, its engine producing smoke. He said frankly there are only two reasons why this would happen: The engine is manufactured completely by a domestic company or it’s several years old.
　　Qiao believes things can be turned around. “We look forward to seeing a technological breakthrough in our domestic engine manufacturers,” he told Beijing Review.

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