The company purchased the assets of MG Rover last July for 50 million pounds. Those assets included assembly lines, R & D equipment, and several brands of cars.



The project was approved by the Chinese government, so it is expected to go ahead and be in production by early 2007. The first model Nanjing Auto expects to produce will be the MG75. The company expects to produce 200,000 cars, 250,000 engines and 100,000 gearboxes annually.

Another Chinese company, the Shanghai Automobile Industry Corp also recently purchased the property rights for the Rover 75, Rover 25, and related engines. So it looks like these venerable British marques may be revived after years of languishing in bankruptcy limbo.

** Symptomatic of emerging Chinese auto industry

In many ways this revival of older western car models is both a throwback to previous Chinese strategies, and representative of a movement towards a new future. In the past the domestic Chinese auto market was virtually closed to imports in order to protect domestic production and sales of older, outdated and technically inferior cars.

But as the Chinese economy exploded in the last few years, and the size of the middle class has grown exponentially, new consumers with cash were no longer content to drive outdated vehicles. So instead of trying to keep non-Chinese made vehicles out of the country, the Chinese government began allowing imported vehicles into the country as long as the foreign companies were prepared to invest in partnerships with Chinese companies.

** Ramping up automobile production

The result was the creation of one of the world's largest automobile industries where just 15 years ago there was very little production at all. In 1990 the entire vehicle production in China was 42,000 cars. In 2004 the country produced 2.3 million vehicles. And by 2007 their target is to make more than 6 million vehicles overtaking Germany as the third largest vehicle manufacturer in the world.

For the past decade it has been very much a matter of scrambling to meet the huge demand created by the economic miracle that has taken place in China. In other words, the Chinese industry could operate without the competitive and regulatory issues involved in exporting to countries like the U.S., Canada, or Europe.

Those issues are significant. Ironically, the Chinese auto industry lacks the centralized organization that all the major car manufacturers must have in order to compete. Car plants around the world are designed to focus on specific products, be flexible enough to change products when necessary, and are tightly integrated into a sophisticated system of coordination with sister plants and parts suppliers.

All of this requires a level of business, communication, and transportation sophistication that has not yet developed in the rough and ready business world that prevails in China.

** Will China soon be a mass exporter of cars?

The development of significant domestic capacity has led many to assume that China will eventually start saturating the rest of the world with cheap vehicles -- just as they have done with other manufactured goods. Some observers predict that whereas it took Japan 20 years to gain a strong foothold in the U.S., and the Koreans did it in just 10 years, we might expect the Chinese to do it in 5 or even fewer years.

But the already mentioned problems of organization and orientation are significant. While consumers in the U.S., Europe, and Japan may be willing to sacrifice a bit of quality for a lower price, it is not likely that the environmental regulations in these countries will be relaxed to let in cheap vehicles.

There is also serious R&D lag in China. The Japanese and Koreans have been able to capture a sizeable part of the market by producing technologically advanced models and by employing very strict quality control. But neither of these things are yet prominent within the Chinese auto industry.

So while there may be growing production capacity in China in the next few years, it is not clear that this can be easily translated into foreign sales.

Only time will tell.