It gives Cherry a real significant location which can avoid all sorts of taxes, duties and other levies that may appear later.
Who knows?
Overcoming the hurdles for international production arising now very strongly due to a more conflicted world.
From Nissan's perspective, it's clearly a matter of further utilising the adult capacity.
China will be the dominant power in car production and will be both innovative and at the forefront of innovation.
Grand architecture is a real challenge going forward.
Welcome to the Chat Lounge.
I'm Tuyen.
Joining me for a chat on Chinese automaker Cherry's possible partnership with Japan's Nissan in the United Kingdom.
John Gaunt, Professor of Economics, University of International Business and Economics, China.
Mike Bastin, a China observer and senior lecturer from the University of Southampton England, and Hans-Peter Burghoff, the chair of the Banking and Finance Department, University of Hohenheim, Germany.
Welcome back to the show, gentlemen.
So let's begin with the deal itself.
Cherry and Nissan have signed a pact to explore the possibility of the Japanese automaker building vehicles designed by the Chinese company at its UK factory.
From an outside observer's perspective, Hans-Peter, why do you think Cherry wants this partnership?
Well, maybe it's a simple story of being present in more countries with own production, overcoming the hurdles for international production arising now very strongly due to a more conflicted world.
Maybe, but that's an interesting question I'd like to ask my Chinese colleague also.
The tendency to become more dependent from your home country, even in China.
We observe this very much by German, large German companies say, oh, Germany has got some problems.
So we get more international to isolate ourselves from this single national development.
And I think this might also happen. hold for China to some degree.
In a more risky world, you try to diversify even production capacity.
Right.
The ball kicked to John from a Chinese perspective, your interpretation.
I think this is actually a very interesting new idea, a new model from a Chinese automaker's perspective.
The first thing I want to point out is that Cherry is actually a very internationalized company.
I don't even believe this, but it's actually true.
You know, over 70% of cherry sales are actually outside of China.
The bulk from Europe.
As a matter of fact, for like one month, one model from cherry is number one on the top 10 model list in UK.
It has two brands, new brands that not many people in China even know about it.
One is a model, one is uh jayku uh and they're actually very popular in uk right now.
There's some talk about, you know, like breaking into the like over 10 of the uk market in less than 18 months or something like that.
You know it's jerry obviously is very successful internationally and i think, at a point of time when you know the japanese automakers are essentially receding, in my view, in many parts of the world.
I think a cooperation or something like this could be a win-win proposition for both parties.
So it sort of makes sense to me.
And also, Nissan is not the first time when it comes to international cooperation like that.
I guess our panelists know about the history of Nissan's dealing with Renault.
At one point, there was this Renault-Nissan alliance being quite successful for many years.
But I think, at a time when this auto industry is experiencing transformative changes, moving from an era of gasoline cars or ICE cars internal combustion engine cars to total electrification or somewhat electrification,
And this is really a time of big changes.
So one would expect to see some big announcements.
Indeed, it's also not the first time the two, Cherry and Nissan, cooperate.
Actually, Cherry explored a similar manufacturing partnership with Nissan in Spain two years ago, marking the Chinese automaker's first production venture in the EU.
But the project has faced delays.
Then what makes the UK project different and why are both sides still confident about moving forward Mike?
Well, that's a good question.
There are several reasons why this particular tie up with Nissan, given that Chery is extensively international already, but the Nissan UK tie up is potentially very significant for several reasons.
One, it could be what would be the very first time that Chinese cars are manufactured in the UK.
And that's very significant.
It's the largest UK car plant.
There are 7,000 jobs there that should be preserved, still Nissan jobs.
It's a real expansion in terms of numbers.
And, of course, with the UK currently Coming out and Brexit coming out of the single European market, it gives Cherry a real, significant location which can avoid all sorts of taxes, duties and other levies that may appear later.
Who knows?
So they fall within that.
And it also increases their presence across Europe as well.
So the UK is still a very, very prominent trading place member across the EU.
So it's a it's the first.
It's the first for a Chinese brand and there are others that have expanded internationally obviously BYD, in particular Geely, but for Cherry it will be a real real, significant moment to be the very first Chinese car brand to be manufactured in the UK.
And building on what John said, a lot of people realise it's the Jeiku brand, the Omada and the Jeiku brand in particular.
Jeiku brand in March this year was the highest selling brand UK new car brand, pipping the Ford Puma which had been top for 2025.
So it's already very, very popular.
And I'm sure production in the UK would make distribution and logistics even more effective and productive.
So the very first time to be in the UK, massive significance and grounds for further expansion.
And it's a non-binding MOU.
So Chery are free to discuss possibilities with other car brands, other international car brands in the UK as well.
Then Hans-Peter, how is this proposed?
A Nissan partnership different from Chery's earlier cooperation with Volkswagen in Germany?
Then
Well, it's different in this context.
Okay, I'll go to Hans-Peter later.
Go on, please.
No problem.
I think Mike is a real expert on cars.
No, I'm not.
What I think is that with Volkswagen but that's just a proposal from me, you might correct me on that that was more like a partnership.
It was more like we worked together at certain points and I don't know how far it went.
But here, if I understand the Cherry deal rightly, they just step in.
They do their own cars.
It's not a sign of kind of cooperation in this sense.
So I think that's a different kind of cooperation we have here.
Contract manufacturing.
Yeah.
So it is slightly different.
So Nissan still own the plant.
Nissan still, they're still Nissan employees.
They're on the Nissan payroll.
But it's very, very helpful for Nissan, whose production is limited and they're switching.
I think it's line two.
They're going to continue with their production.
Their line one will be exclusively cherry car production.
So it's very, very good for their plant utilization.
So it's a win-win, but it's pure contract manufacturing.
May I pose some questions in this respect?
I'm not sure about if it's really win-win, because in a way you give up your own product and you produce another product.
That's a bad sign.
It means that your presence on the market is not strong enough to sell your own product.
And I mean, this kind of cooperation is good with regard to variable costs of production.
Because then you have something to offer.
If this product line isn't used anymore by Nissan, then they put somebody in and this new production by Cherry just have to cover the variable cost but not a fixed cost.
And that's a big problem because in the long run it doesn't pay for new factories, for vamping up things, for all these things.
It's just, how should I say, a temporary solution, which helps us to bridge the problem.
The question is, for Nissan, does its bridge lead to anywhere?
Does it lead to, again, being a stronger company?
Or you just scale down to somebody who provides production facilities?
Even if that means Nissan will utilize the 50 production capacity which, without this project, is totally unutilized.
It's also not a win-win to you. mean it's not a thought of charity if it's not a win-win cooperation it's a problem of nissan they can't solve their problems by letting out production capacity because i mean it's a good business in the short run because it means that the variable cost of their production having this production capacity they're covered now that's good and even they earn a little bit more there because there's some margin between the full cost calculation and the flexible cost variable cost calculation so there's something to gain on both sides that win-win but only in the short run in the long run nissan must have a full cost calculation which allows them to have these factories So if they don't have that, these factories will get older and older and older.
And in the end, nobody can use them anymore.
So that's a dangerous point if you switch from being somebody who produces and fully finances production to somebody who just produces somebody else's product for some time.
And I think a car factory is a big, big investment.
It should cover the full cost in the long run.
So you're saying in short run, it's a win-win, but not necessarily in the long run.
In the long run, Nissan must find other solutions to its problems.
That's not a good solution.
John, do you agree?
Well, I'm pretty sure you know the issue raised by Hans-Peter has been already thought about by the Nissan executives.
And I don't think that not as smart as to not even thinking about that prospect.
I think the issue comes down to the trade-off, whether they're going to let this plant sit idle.
By letting this plant assembly line, additional assembly line sitting idle.
I don't think it's going to Take their sales prospect doesn't mean that the charity is not going to keep investing.
Charity is not going to make inroads further into the British market.
They probably have already thought about these issues.
And we all agree that in the short run, it's a win-win situation over the round one.
I'm not even sure there's a round one for Nissan in this case.
So, you know, I think we have to speak up the market realities here.
That would be my assessment.
Then, if the partnership goes as planned or as they both want John, what would be the biggest advantage for both companies then?
Well, I mean from Nissan's perspective it's clearly a matter of further utilizing the idle capacity there.
They are not able to sell all the cars being produced using these two assembly lines.
That's why they are consolidating production in one assembly line and use the other one for producing somebody else's automobiles.
And that saves, you know, economists would call it maybe fixed costs.
It saves fixed costs.
That's a win from Nissan's perspective.
And I think from Chile's perspective, it really saves money in terms of capacity expansion here.
You know, they're selling very well.
Their sales keep going.
And they have to... spend more money to build a plant from the scratch.
Why not using somebody else's production line that's already there?
Cherry is shipping CKE products to the UK for assembly there anyway.
Whether they do it or somebody else do it, it doesn't matter.
I think, at the end of the day, what really matters is what these cars sold under what.
So under what market here?
They are going to be sold under J. Cool Armada brands.
And I think from Cherry's perspective, you know, that's a win for them as well.
But John, will producing vehicles overseas erode some of the cost advantages Cherry enjoys from manufacturing in China?
Well, I think, you know, I think this boils down to a very much sort of a political question.
I don't think that you know, as President Macron has pointed out, that you know this trade relationship between China and European Union, or maybe UK is included.
It's not going to be sustainable over the long run if we see this very sizable sustained trace of Russia or trade deficit on their side.
This is not going to be a sustainable situation.
So it's not a matter of cost.
I think it's a matter of sustainability over the long run political sustainability and economic sustainability over the long run.
I think making this kind of investment in the UK, having these cars being produced in the UK, still preserve jobs over there, still utilizes the capacity over there.
I think somebody mentioned 4,000 jobs there.
We don't want to see these cars shipped from China into the UK and see these 4,000 jobs disappear.
So I think this can be a win-win situation for both sides.
And, you know, I think it's more of a strategic decision here.
So it's not just a simplistic cost comparison.
So you're saying that advantages generated by producing in the UK will actually outweigh that of rising labor costs?
If you will, if cherry produces in China, right?
I think what I'm saying is it's probably a political necessity here.
China probably doesn't have a choice.
It has to produce cars over there in the UK if they want to be over the long run.
I think the model of producing over here in China and exporting everything to the UK or to Europe is not going to work over the long run.
Then we know that Sunderland was once a crown jewel of British auto manufacturing.
What is the need to bring in an outside brand, be it Cherry or Nissan?
Reveal about the pressure facing traditional automakers in Europe, then.
This has already started in the UK.
I mean, I think the UK has stopped producing sort of mass market costs quite some time ago when they stopped producing Leland, for example, right
I mean when the factories were being taken over by BMW, when they sold Jaguar to Ford quite many years ago.
Today, I think, UK only produces Leland Under its own brand, a small sort of a niche brand, a luxurious brand.
They're still producing some cars like that.
This is a long history of industrial policy going back to Prime Minister Thatcher, I believe.
But, you know, I think it's a good idea to still preserve some of that old legacy here, right?
I mean, after all, UK was one of the few countries first started the whole industry in the first place.
So I think you know having a little bit of an auto industry in UK is still a very good thing for UK and also for foreign companies operating in UK.
I think the big change...
Go ahead and write.
Yeah, the big change in the UK obviously governments.
You know Thatcher was very much bringing in the Japanese.
I think the big change in the UK in the last few years is the UK car consumer who are now less, let's say, brand loyal.
It used to be the case going back a number of years that your car Japanese cars are more reliable, German cars are more reliable, and they were, and they probably still are.
But now I think that that has gone.
I think the UK car consumer is far more open-minded and that's why we see the Jaku brand really topping the list of new car sales recently and that, I think, can only continue.
So I think the UK car consumer is far more open to cars from wherever they are, for whatever brand.
And the advertising we see that I've seen and looked at in some detail of the Jeku brand on UK television again, is very advanced, very sophisticated.
So I think the branding is becoming far more mature.
And of course, we have the reliability now.
So the fact that they're Chinese produced is actually becoming a good thing.
So that's the real change for the UK consumer.
We saw this with Lenovo, with Haier.
These brands are now as competitive as the real household names that typically are German, American in those areas.
So it's good news for Chinese produced cars and the UK car consumer is open to that.
Very, very positive.
May I ask you one point?
Go ahead.
What's the role of price in these new chances?
Because I mean, if you sell a car of a luxury class at the price of a medium class car, then for sure you look very, very good.
And we must be aware of that China still has much lower production costs in many respects.
We know that China has a much larger CO2 emission in its production overall.
Much larger means more than five times larger than production in the European Union.
And as CO2 emission prevention is costly, we cannot in Europe really compete with the cost side.
So there must be still a certain price advantage.
And that makes the trademarks, the brand stronger.
Then it would be.
It would compare cars of the same class in a way, and that's something I wonder, because it means we cannot really compete because Chinese luxury car, for sure, is better than a European middle class in the same hole, for the lower levels as well.
Good point, I think.
But well, traditionally Chinese brands have competed on price, but I think that's changing as well.
So You do find that the Chinese brand is a little bit more price competitive.
But again, coming back to UK car consumers, that is a factor.
But I don't think it's a decisive factor or as important as it used to be.
And I think this will change, particularly with the branding and the advertising that is more and more slick now from Chinese car brands and Chinese brands generally.
So I think the price competitiveness is there at the moment.
But I think that will change as well.
So I don't think that's going to be a long term issue.
And it's not as though the Chinese brands, Chinese car brands in particular, are saying to the market you know, we're as good, but we're cheaper.
I think it'll be more and more superior technologically.
And then we see that with BYD, the technological advances there.
So that reliance on price is something that I think will phase out as well.
I want to make a comment here.
You know, the cars Cherry and other Chinese makers are trying to push in Europe are mostly hybrid cars and electric vehicles.
I think the mere idea of talking about emissions stuff It's really blind to old age.
As a matter of fact, the top best selling cars in China last month?
None of them.
None of them is a nice car.
None of them is a nice car.
Each one of them either is an electric vehicle or a hybrid car.
More than 50 percent of the cars sold here in China today are electric cars or hybrid cars.
So I think, you know, this idea about emissions stuff, I mean, this is the ice age.
It's out of date, out of context.
This is 20 years ago we're talking about these things.
But today, I'm being very honest here.
I mean, they're belonging to the history thus be.
This has been The Chat Lounge.
It seems we're witnessing a reversal of roles between Chinese automakers and their European and Japanese counterparts.
Then what does this shift mean for China's auto industry and for the future of the global automotive landscape?
That's coming up next.
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Welcome back.
Let's continue our chat on Chinese automaker Cherry's possible partnership with Japan's Nissan in the UK.
A slew of other Chinese automakers.
They're also entering overseas manufacturing networks through partnerships or acquisitions or contract production.
But They are mainly, you know, electric vehicle producers, manufacturers or hybrid car manufacturers like BYD, Xpeng and Great Wall Motor.
None of them are the traditional combustion-driven cars.
So, John, which examples or example stands out most to you?
The example, well, I mean, I think consumers' tastes have already changed.
I mean, here's a saying here in China.
Once you sit in an electric vehicle, You would never think about going back to an ICE car anymore.
In terms of the quietness, in terms of the comfort of driving, in terms of the automation they can afford, in terms of the entertainment, the information they can afford.
There are certain things on an ICE car you just cannot do.
In an EV, it's a lot easier to do, for example, things related to autonomous driving.
I'll just give you one example.
For something like autonomous parking, for example, it's a lot easier to do on an electric vehicle.
And there are numerous examples like this.
So I think there's a reason why Chinese consumers are getting to EVs and abandoning ICE cars.
They're not doing this out of some environmental concern.
No, it's not because of that.
It's just because of the sea of difference in terms of delivering the experiences of driving a car.
They just love EV.
So I think there's a fundamental difference here for any ICE car executive.
Like Jim Farley, Ford Motor CEO, he shipped two Xiaomi cars to the United States, to Detroit, and he loves it.
He's been driving it.
So I want to go back to the statement again.
Once you step into an EV, you never want to go back to a nice car again.
Yeah, that's where actually Chinese automakers' competitive advantage lies, right?
Not long ago, European and Japanese carmakers were bringing technology and brands into China.
But today, Chinese brands are using overseas factories to produce vehicles.
So are we witnessing a reversal of a rose here?
And what does this shift mean for China's auto industry and for the future of the global automotive landscape, then?
Hans-Peter?
Well, it is a big change for sure, because China is now at the forefront of technology.
We are very much aware of that.
It's not a developing country anymore.
We should treat it as one of the big industrialized strong nations.
And for sure, they can produce perfect cars like all these nations can with all the means they have.
It's a dangerous development as long as these cost differences exist.
I've been talking about this earlier because it means we get an asymmetry in the global trade at this point, meaning other nations which have the same ability to produce great cars cannot do so at the same cost.
And that's a big problem we still have.
I know this is somewhat fading out.
Chinese workers, Chinese engineers also want to get well paid, so the costs are going up in this respect.
But there's still the story about that.
So many parts of the Chinese economies are just very, very cost efficient due to lower standards with regard to economy and other aspects.
And this also somehow is mirrored in the cost of production of cars and leads to a more aggressive stance.
So I don't think that in the long run, the world will accept these asymmetries.
And this means we get into a more fractalized world, which is a sad thing, because I think it would be fantastic if we all had a choice to buy the best car on the globe at the best price.
But we can't cope with this asymmetry for long.
And so I think so in this respect, it will depend on political decisions how this development will really change the world in the future.
And these are political decisions I personally cannot foresee, because politics is erratic, as we experience every day again and again.
Yeah, we'll talk about some political factors later on.
But now on this issue, Mike, your take here?
I mean, this is another aspect of the process of globalization.
So it's a cherry, it's a Chinese car brand.
It's good for the nation, for China and Chinese economy that's expanding internationally and its brands are so popular in the UK now.
But the fact that it's Chinese will become less significant as it expands more and more internationally.
And it will just be a competitive and internationally competitive car brand, as Hans-Peter said.
Generally, that's a good thing.
The more competition we want, the better and better for consumers.
And I think that's how the UK consumer looks at it.
This is just a competitive car.
They like the advertising, they like the branding.
And it's going down well in the UK.
And this really is, I think, just a stepping stone.
I think this is the thin end of the wedge that we've been now seeing.
And another point I'd like to make I think I've made this point before is that there's a confidence now, a cultural confidence, a confidence in Chinese manufacturing, a Chinese mindset, the Chinese company, that they can succeed internationally, and not just on price, on technology uh, on logistics, and i think that will continue.
So so this is good news for the consumer and you're very, very competitive brand, coming from a part of the world that you know.
Until recently we haven't seen that too much, but i think we'll see that more and more.
So consumers are will benefit john, Your take here.
I think Hans-Peter is not that sure about whether this or trend may continue or should continue.
If there are any like geopolitical or political factors get in the way.
So your take here, what would this?
That practically on the streets every car is a Volkswagen brand.
In the late 1980s, late 1990s.
At the time, we didn't complain about geopolitical situation.
We didn't complain about Germany taking over China.
We didn't talk about these things.
I think the indigenous oil industry developed here in China gradually.
I remember I was brought up in Shanghai.
In the 1990s in Shanghai, you see no car other than Volkswagen cars, basically.
But of course, even today, there are still many Volkswagen cars running on the streets of Shanghai.
I think it's a matter of developing a strategy that can work out for both sides.
As a matter of fact, Volkswagen was actually very smart in terms of partnering with Chinese automakers in its transition towards the electric era.
It has made equity investments in a company here in China.
They are partnering with other automakers to develop smart driving technologies.
I think these are pretty small strategy.
We're trying to seek a win-win situation here, so that the giants of the auto industry or the auto world can still fly together.
So I think I wouldn't necessarily characterize this as sort of us against them kind of a mentality.
We had a very similar history before moving forward.
I think the chinese government, the chinese council, wouldn't be sensitive to the political issues involved here, when it comes to uh, you know more cars being sold in europe, more cars running on streets in europe, and uh, we need to do this sort of thing in a very delicate way.
Then you're saying moving beyond exporting vehicles toward building a global manufacturing footprint is becoming a trend in China's auto industry.
I think I'm even more audacious than that.
I think, you know, today, even the idea of a Chinese automaker can be challenging in my view.
I mean, history, look at the Nissan Peugeot.
Raynaud Alliance, is this a French company?
Is this a Japanese company?
Who knows, right?
I mean, it's both actually.
Why can't we establish a Volkswagen SAIC company?
Call it a German company, call it a Chinese company, it really doesn't matter.
As long as both sides can benefit from this preserving jobs in Germany, preserving jobs here in China I really don't care if the company is a German company or a Chinese company.
But there are a lot of benefits for those Chinese automakers and for overseas consumers as well.
But are there any downsides that you may be concerned?
Could I make a point here?
Sure, Mike, go ahead.
I think one of the potential limitations when you're working with Nissan, okay, it's...
It's a wholly owned cherry brand and Nissan are producing it.
But what I would like to see as Chinese car brands expand internationally, Chinese brands internationally generally, is an infusion of Chinese elements and playing on Chinese cultural heritage.
That would really appeal to UK consumers, because at some point Even car brands have to have that emotional edge, that emotional meaning.
And China with Chinese heritage and a Chinese brand infusing Chinese elements.
You know, the Guo Chao aspect is ideally placed to do that and do that properly and appropriately.
And I think that might be a limitation, working with nissan, working with other international car brands, that they they might be limited.
I'd like to see them be a little bit more bold.
The jayku brand, for example.
It is a very, very successful brand but it doesn't sell itself on that little element of Chinese tradition, Chinese heritage, telling that emotional story which we know is crucial to any branding success.
So that infusion of Chinese elements is something that I think Cherry need to incorporate into their strategy.
But maybe they will do that in the future, but it might be limited.
But again, maybe this is just a stepping stone and they'll go even further in years to come and not need this anymore.
Right.
Maybe go back to the question I just asked about the downsides if Chinese automakers are moving their production lines overseas, like in a great amount of time.
I mean, the downside, this happened with Japan when it expanded.
The downsides are obviously that the jobs are here.
So the UK, the largest UK plant employing 7,000 people are here.
Those would be Chinese employees.
But on the upside...
The sort of high value added jobs.
If that's not too demeaning when it comes to design and creativity and branding and strategy, should remain with Cherry, possibly in China, where they can control things.
So I think that the value adding jobs and this high value adding economy with creativity and design, that's where the future lies and that's where modern economies thrive and the the actual production jobs will be overseas.
I think there are opportunities here for high-tech development in china, to control and develop the cherry brand and again, as i said, with chinese elements and a chinese, slightly chinese infusion of cultural heritage that really probably has to come from China and control from China.
So high value added jobs should remain.
And that was always the case with Japanese expansion.
The R&D facilities were remaining in China, in Japan, and that should be the case with Cherry.
So there's a downside in terms of numbers, but in terms of the value added jobs, that's something that should expand in China and track younger Chinese graduates, Chinese employees, real opportunities in the high tech area.
Let me say maybe something in general on that point, what you said.
Well, on the other hand, it makes a company more complex, and that's costly.
That's for sure.
You have not only to cope with the import-export laws and things like that.
You also have to cope with national labor laws, with national attitudes, with everything in every country where you produce.
So very large companies become extreme complex.
That works nicely if you have a high profit and can afford it.
If competition gets harder, there's something like an optimal level of complexity, which means you should concentrate on certain areas and not be just everywhere with a full thigh.
So that's a task for us on the road to getting global, for Chinese companies have to solve, have an optimal level of complexity.
German companies, for example, have experienced a lot of problems, for example, with British labor laws, with British attitudes.
And I remember the failed experience of BMW with MINI in England.
This was a big, big problem to manage.
I think that's something you should keep in mind, that somehow you must restrict complexity coming from this internationalization to an acceptable level.
What I'd like to say is a company must be very well organized if it gets so international.
And that's something you should never keep out of mind.
On the growth path.
They make a lot of profit because you can still use a cost advantage of producing in China, because you're new and you're willing to invest.
You should keep this issue of complexity in mind.
And that's just what I want to say.
If you're active everywhere, if you have to cope with everything, this might get very hard for management to manage.
And my personal experience with many companies is sometimes things went out of control somewhere because it's simply in a different country.
You've got other managers there.
You've got other rules.
And that's something a company should handle.
So the optimum of internationalization certainly is not maximal internalization but the right level of internationalization.
I think it's cultural understanding as well.
That's not easy.
So I think quite a few years ago German cars bought quite a few famous British brands, you know MG, the Mini, I think.
Tata, the Indian brand, bought a couple of Land Rover, Jaguar.
When they sit around the table, obviously, there's a bit of a culture shock.
That's inevitable.
And it takes time to understand how different cultures work, how they interpret things in terms of timeliness, in terms of meetings.
So I think that's a challenge.
That's a challenge for any company internationalizing, but particularly for Chinese companies, where It's still relatively new and they're moving into very, very different cultures.
But again, I think there's a confidence there and I think there's a real determination and an understanding.
This is a long-term thing, and understanding different cultures is a barrier they can surmount.
So I'm quite positive.
Hans-Peter is still suggesting that the Chinese company Cherry didn't think things through, right?
They made some, like, probably... No, no, no.
He's not saying that.
He's not saying that.
He's just saying that... these things should be taken into consideration.
Yeah.
Like you said, they should have... I just think it's an intangible.
Yeah.
They should have thought this through, right?
Nothing about cherry, I think.
Okay.
Then, John, your take here?
Well, I think, you know, I was thinking about example of SAIC's operation of the MG brand.
MG is a British brand It has been bought by SAIC, Shanghai Automobile, a long time ago.
And MG actually is doing quite well in Europe and in UK in particular these days.
And I think the history of managing MG is actually a very good example of a Chinese automaker should get itself internationalized how it should get internationalized.
It keeps its research and development center in that Long Bridge facility.
It tries to keep the MG sort of heritage.
It's more of a racing car for an average person, try to design cars towards that idea.
As a matter of fact, this model of keeping design centers, development centers in Europe is actually quite popular among automakers here in China.
A lot of cars are indeed designed in Europe.
I mean, I have gone through many occasions where the chief designer came onto the stage in the opening ceremony of a new car and you see, the skies are European.
And I think, the big automakers here in China, for example Shanghai Automobile, they all have their design centers in Europe, in Italy for example, in Germany for example.
So I think the automakers in China are cognizant of the problem, the issue here, and they want to design cars that can be sold in europe.
They are trying to design those so-called global models and we have to see how well they are going to do that.
And in this case, cherry is essentially following the footsteps of these great companies.
We have to see how good cherry is doing okay.
Hanspeter has got some doubts or is not so certain about the prospect or the future of this partnership.
Then let's probe that aspect, prospects and challenges.
But that's coming up next.
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I was born on the 17th of November.
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He navigated between two vastly different cultures and moved further to realize his dream and promote understanding between the people of China and the United States.
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Welcome back.
Now let's dive into the prospects and challenges of Chinese automaker Cherry's possible partnership with Japan's Nissan in the UK.
Well, like we mentioned earlier, the agreement remains a non-binding memorandum of understanding.
What could be the biggest obstacles before it can become a reality?
John, your take?
I think it's quite interesting to see that they are saying they are exploring the possibility.
So obviously, having another company producing your own car is a very complex task.
Many details have to be worked out.
And I think that's why they call this a non-buying the MOU, that they are exploring things, right?
It's not a done deal yet.
They have to work out all the details.
So we have to see whether it will eventually materialize or not.
But I think, regardless of this potential venture, I think Cherry has been quite successful in terms of landing in the British market.
And they've got a good start and they are growing.
And hopefully they can bring Better products, more economic products to bridge consumers.
So you don't foresee any specific challenges?
I'm pretty sure there are a lot of challenges.
Of course there are a lot of challenges.
What could be the biggest one?
Well, I think we touched upon some of it.
You know the cultural differences, the labor market, the labor law, for example, cultural differences, corporate cultural differences.
You know, these are all big challenges.
Keep in mind, Cherry is an SOE, a state-owned enterprise owned by the local government in Wuhu Anhui Province.
As a matter of fact, I'm right now as I speak, actually.
But in any case, there's got to be a lot of challenges.
One of the challenges, just from a branding perspective, for Cherry and other aspiring international car producers is this issue of brand architecture as they expand and become bigger.
How do they balance and juggle that portfolio of brands, not just products?
So JQ, Omada, what names do they use?
Do they lend the company name?
Is it two-tier branding with a little bit of cherry, a little bit of Chineseness?
Possibly some, but some not.
So that brand architecture needs a lot of planning, a lot of long-term thinking.
And I think that's a real challenge because car consumers will want change and they will want brand names that are different and exciting and have an emotional attachment, emotional story.
So brand architecture is a real challenge going forward.
But Nissan has said all those things will be in its control even after this partnership.
So it can't be a big issue, right?
Yes, I think so.
And I think we have to just be positive with this memorandum of understanding.
And the position at the moment looks very favorable for both brands, both companies.
But it really is a stepping stone.
So I think what emerges over the next few months and years is something we have to keep a very, very close eye on.
I think the projection or the plan is to start rolling off the production line in, i think, april next year, some of the financial year 2027, not very far away, but.
But a lot can happen and change in between, and again it's a non-binding mou.
So But yeah, let's watch this space.
And I suspect Cherry will move quite decisively and quite quickly.
And again, that Jaku brand and its popularity in the UK is driving everything.
And that's a really good platform for expansion.
But John mentioned a labor union could be a problem.
Can you elaborate a little bit more on that?
How might labor unions react or how might it be some obstacle to this cooperation?
Yeah, I mean, that's I think that's a challenge.
I don't think it's. it's a major challenge now.
So I think you've got to work with government.
You've got to work with the unions.
And obviously in the long term, that's a good thing.
So people do want security and they want jobs that are protected to a certain extent.
And again, I think the key thing here is that the price and the cost of It will be important, but it really is.
If you get the branding right, that price sensitivity diminishes.
And I think that's what UK car consumers will value, the branding more on that successful brand.
So if your production costs are slightly higher and the workforce are higher, more unionized it can actually be a positive thing and you get better production more effective production and more creative employees and happy employees i think that question about i always think it's very short-sighted to look at short-term cost reduction we're looking at long-term premium brand building and i think that's again where chinese brands are now really looking and being successful more and more not just in cars but in many other sectors so it's about developing the brand yeah Mike, still for you, the experience of China's Jingye Group, you know that, the steel group, has raised some concerns among some observers.
Six years ago, Jingye acquired the British steel when it was on the brink of liquidation, carrying debts of more than 500 million.
And Jingyi subsequently invested around 12 billion pounds to save the 150-year-old company and protect more than 3000 jobs.
Only to see the plant eventually taken over by the British government.
Some people worry that Cherry could face similar risks in the future.
You know, like John mentioned, Cherry is a state-owned enterprise.
So are such concerns justified or do you think there are different cases?
I think that there are key differences here.
And I don't think threat is as great.
And I'm not sure that it's a threat either.
I think what the UK government eventually do with British Steel will see, I think will have to be very favourable for the Chinese investors.
You say save the company, saved a lot of jobs.
And I think it has to be seen to be very favorable for all parties.
So I don't think it's going to be some sort of governmental smash and grab and sort of almost booting out, as you say, the Chinese investor that saved the company.
So I think there'll be some sort of compromise.
So the days of total renationalisation and we have a leading member of the Labour Party, Andy Burnham, who's actually could be elected back into Parliament is talking about that more and more.
That wholesale renationalisation by the UK government is a thing of the past.
So I think it'll be some sort of partial compromise.
Uh, renationalization that's favorable to the private sector as well, and we've seen, you know, economic history tells us that public private partnership is really that getting that balance right is the key to success here, and the private sector really has a very, very important role to play.
So i don't think it's a great, a real threat, And if the government did behave in that way, in a sort of bullying way, obviously it would dissuade a lot of international investors going forward.
And they need that for the health of the UK economy.
So I don't think it's a great threat.
And I think the situation is different here.
And Cherry are very well placed, yeah.
Okay.
Then Hans-Peter?
I could also answer what Mike just said or react on that.
Well, I mean, the car area also is an area where state intervention is rather improbable, because I mean it's not critical infrastructure.
It's about individual mobility, and we have at least some infrastructure back up by public transport here.
And so there's not such a big dependency.
With regard to steel, yes, in Europe, we're going back to the early 20th century.
Steel becomes a strategic uh good.
That's important and where we must have control.
We experienced when russia started its attack, attack on ukraine, that we had sold some of our energy, energy uh capacities, some of our facilities in this respect, to a russian company, so they didn't form any reserves.
They had enough gas reserves we had.
We had a big problem with that at that moment and we feel very much how such strategic assets play a big, big role and that the state must have control of them in this conflicted world we're driving into.
But cars, as far as I can see, they don't play this role.
There are other things like computer technology and some other aspects where China might have more problems, because these goods are strategic, and there you might have a political reaction somewhere where countries just say this is much too dangerous.
In this world.
We cannot hand over any control over these assets to a foreign country which is a different political system and is allied with our enemies.
That's also a point we must take at that point.
Then how likely do you think this partnership is going to be or to develop into a formal agreement?
Yeah, I think there's a lot of political risk now in this world and this has an impact on any internationalization strategy we have.
And you must always ask yourself what kind of industries, how much is it touched by these different global political developments and how probable is the state intervention in this respect?
And that's what you saw about British reaction to the Chinese company buying the steel production capacity of Great Britain.
Countries become sensitive to this at the moment, much more than in the past.
And any corporate strategy, also national strategy, like in China have to cope with this problem and try to either take it into account or change policies in a way that we get back to a more reliable world where we can have a real globalization over a far greater range of activities, which I prefer, but that's not the political reality on this globe at the moment.
So you're saying political intervention could be the biggest risk there, right?
Then what's the likelihood, what are the chances of this deal between Cherry and Nissan to happen?
I think this has not a big impact because private cars, individual cars, have no systemic dimension and are not critical in regard to many aspects that play a role.
Energy supply, supply of basic goods technology, which is not As standard in these cars.
Everybody can look in the cars of the other countries and find out what's happening there.
In this respect, private cars sold by Chinese companies, produced by Chinese companies, don't play a big role.
It's more here about the discussion how much inequality in the trade balance the countries are willing to accept.
But this would be a reason to discuss about tariffs, discuss about penalties, for example, for countries which produce too much CO2 emission.
But it would not be a reason to totally block such an activity.
And i mean, if cherry produce in great britain it applies to the rules of great britain, then these cars are no longer in the sense chinese cars.
So this might even lower the problems we have in this area.
Last two questions to all of you.
Some analysts argue China's auto industry has moved beyond the old model of a trading market access for technology and is entering a new phase in which Chinese companies provide the technology while overseas partners provide the manufacturing base.
How accurate is such an assessment?
And what challenges might Chinese automakers face as they navigate this transition and looking ahead five to some 10 years?
What other challenges, major changes do you expect to see in the global auto industry?
You know, beyond the trend we've discussed and probably we start with uh john or any comments you want to make first about hans peter's previous remarks up to you yeah well um, i think the idea of uh Chinese companies providing the technology while overseas partners providing the manufacturing base.
I would be very cautious about characterizing the future model.
I think it's more of a cooperative model as I pointed out in auto industry.
It's a global industry.
Even Chinese companies develop their own cars.
They will be setting up studios, development centers, in Germany, in Italy, in UK in MG's case, for example.
It's a joint cooperative effort.
So I'll be very cautious about saying things like that.
But I do share the sentiment coming from Europe that you know, this trade deficit is blooming and it's not going to be sustainable.
And from both the economic and political perspective and we have to understand all the industry is very different.
It's quite political actually, because it's such a very deep, long value chain involving hundreds of companies and hundreds of thousands of employees.
So it is going to be a political issue at some point, I would say.
So I think Chinese companies are indeed expanding in Europe.
That's a great thing, but I think there's also the risk of a point of no return and everything moves into a totally uncontrollable political issue here.
We have to be very cautious about that prospect.
Now I do want to make a bit of a comment on Hans-Peter's statement about the geopolitical and political issues surrounding.
Obviously, you know, I think He's referring to the conflict in Ukraine and portraying China as siding with Germany's enemy.
And I think this cannot be further from the truth.
China essentially takes a neutrality position.
We don't ship arms and weapons to Russia.
We trade normally with both countries, Russia as well as Ukraine.
China is Ukraine's largest trading partner.
We are also Ukraine's largest destination for grain exports, actually.
I think somehow this narrative that China is aligning with Russia is total nonsense in my view.
I have been engaging in a couple of conversations with people from think tanks in Europe and I don't think that characterization is accurate.
It's true at all.
I think the best rebuttal of that narrative is the statement that I like to quote from China's ambassador to the United Nations.
He said that if China is really on the Russian side, this war in Ukraine wouldn't be like this period.
It would be finished a long time ago.
So I would conclude by saying that.
Fair enough.
And Hans-Peter?
Well, the truth is, the future is so uncertain that we simply cannot say this, because there are so many threats now to the global stability that, from a European perspective, it's really difficult to foresee this aspect.
What we will see if it just goes on like it did is for sure that China will become the dominant power in car production and will be both innovative and at forefront of innovation, and will be Also it was about the quantity cost leadership and all these things in front of everybody else for some time.
Hopefully then other countries will also catch up and become better again.
And that's something where you see the positive aspect of this development for especially European countries.
It's really a call to action to do something, to be more efficient, to do something to get back to a more market economy, to less bureaucracy and all these aspects that allow these countries to become stronger.
And especially for my country, as car production plays a big, big role, I think the pressure should grow very, very fast now in the next two, three years to become more efficient.
We enter a different game, where there is again more efficient competition for China, which might lead in 10 years to a totally different result.
All right.
And we end this with Mike.
Thanks.
In answer to the last two questions, I think the point I would like to make I think I've made before it's very important is that the technology race is there.
China has a very, very clear advantage.
It's very exciting.
I think the competition increasingly will be at the branding level.
The technology will be copied.
Others will catch up.
That's inevitable.
So where China and Chinese brands, particularly Cherry, now need to really really think more about the Chinese infusion of Chinese elements, traditional Chinese cultural heritage that can really succeed with an emotional story and an emotional car brand where they really have an advantage.
We tend to think of cars as efficient powerful spacious, very rational, and that's important.
You've got to get that right.
But ultimately the emotional takes over, and that emotional layer of chinese cultural heritage is really where cherry need to be looking.
And so the technology is one thing, but building on that and that intangible cultural heritage, emotional attachment, It's been very, very difficult to compete with.
So that's really what I think the future lies for Chinese car brands and Chinese brands generally.
Thanks for that suggestion.
On that note, we wrap up our chat for this session.
Many thanks to Mike Bastin, a China observant senior lecturer, University of Southampton, Hans-Peter Borghoff, chair of the Banking and Finance Department, University of Hohenheim, and John Gahn, professor of economics, University of International Business and Economics.
Good time and insight.
We'd love to hear your thoughts.
So drop us a line at radio at cgtn.com.
I'm Thuyen.
Thank you for listening.
Join us again next week on The Chat Lounge.
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