Chinese motor industry: The Rover's return

China's car industry is moving towards independence from the West, reports Clifford Coonan

China's biggest passenger car-maker, Shanghai Auto (SAIC), this month unveiled its own-brand family saloon at a ceremony in the country's largest and brashest city and outlined plans to make 300,000 cars and trucks a year under its own brand by 2010.

Well, SAIC almost unveiled its new saloon. The car was shown in dark shadow on a projection screen, as it is under development and will not be released until June, but it looks remarkably like the Rover 75.

And any similarity is no coincidence - SAIC bought the plans for the luxury saloon and the intellectual property rights to build them from MG Rover before the British car-maker went bankrupt just over a year ago. Since then the company has spent £264m on its SAIC Motor Manufacturing Unit as it bids to develop its own cars for sale around the world.

David Lindley, the British chief engineer of the new unit who used to work for Longbridge-based Rover as well as BMW, gave the briefest glimpse of the new car in his presentation in Shanghai and said it was an "improved" version of the Rover 75.

"Our new family car was signed off in January. We want it to meet the highest European and Chinese standards of safety. It will feature improvements to the four-cylinder engine and a new manual transmission," Lindley said. SAIC is in partnership with General Motors and Volkswagen in China, which is the world's third-largest vehicle market. Every year the company produces hundreds of thousands of Passats and Santanas under the VW brand and Chevys and Buicks with GM badges.

The new own-brand luxury four-door model will compete directly with GM and VW when it starts being exported to Europe next year. It will also soon be exported to the US.

Wang Xiaoqiu, general manager of SAIC Motor Manufacturing, said: "Our target is to sell over 200,000 own-brand cars by 2010, with 45,000 of those shipped to overseas markets, including Europe."

SAIC lost out to its Chinese rival Nanjing Automobile Group in a hard-fought bidding war for the MG Rover group. After the dust settled, SAIC was left with the intellectual property rights to two Rover models, the 25 and 75.

BMW still owns the Rover brand, but SAIC spokesman Hawk Huang said that his company was talking to BMW about buying it. Confusion still reigns over who owns what exactly. "We don't know if Nanjing Auto breaches any of our intellectual property rights before the first car is made, but if we find there is a problem, we will pursue them according to the law," said Huang.

There had been talk of a three-way cooperation between Shanghai Auto, Nanjing Auto and MG Rover before the British car-maker went bankrupt, but this talk ceased as soon as Nanjing Auto won the MG rights.

It's a big announcement in terms of overall trends in the growing Chinese market. The big car-makers have long feared the day when Chinese manufacturers get their act together and start producing a truly competitive product.

Most Chinese consumers would prefer to buy foreign cars, particularly in the luxury saloon category, but a decent locally produced vehicle could shift units. As the quality of Chinese cars improves, so too does the share of domestic brands - last year over a quarter of passenger cars sold in China were Chinese brands.

This could eat into valuable earnings for foreign companies selling into China, which has become ever more important to the bottom-line for companies such as GM and VW. GM's profits of £188m from its Chinese joint venture in 2005 were particularly welcome in a year when the company was haemorrhaging revenues in developed markets.

And a cheap, reliable luxury saloon could find a niche in Western markets. Watch out for the Rover's return.