City defies the slowdown

As part of its efforts to be self-sufficient from government policies, SGMW is actively introducing different auto models, including the compact MPV called the Wuling Hongguang, which costs between 45,000 yuan and 72,000 yuan.

"When people get richer, they need to trade up for higher-end vehicles and the Wuling Hongguang fits into this niche market," says Hu, who adds that this year SGMW expects to deliver 350,000 units of the Wuling Hongguang.

A sedan called the Baojun is also among the newest additions to the company's portfolio. Last year, sales of Baojun ranked fourth among sales of sedans for Chinese automakers. The sticker price is 63,000 yuan to 96,000 yuan.

Thanks in part to sales of Wuling Hongguang and Baojun, SGMW delivered 1.2 million vehicles between January and October, up 14 percent from the previous year.

But success in Liuzhou has been mainly through the sales of passenger vehicles. The market for commercial vehicles, which include trucks among others, is an entirely different story.

Dongfeng Liuzhou Motor Co, a major commercial vehicle manufacturer, last year predicted that its truck sales would drop 50 percent from 60,000 units last year to 30,000 units this year as a result of shrinking demand.

To combat the sluggish market for commercial vehicles, Liuzhou Motor is improving the fuel efficiency of its commercial vehicles to meet government requirements and also exploring new markets.

Huang Ziqiang, deputy general manager of Liuzhou Motor, says demand for trucks in China is saturated and the company is looking to export trucks to Southeast Asia, Africa and South America.

The company's bread and butter, however, is the passenger car sector, which is expected to raise production capacity to 180,000 units by 2017. Last year, sales of passenger cars contributed half of the company's 12.7 billion yuan in revenue.

"Hopefully we can take 8 percent of the Chinese commercial vehicle market and 1 to 2 percent of the Chinese passenger car market by then," Huang says.

MPVs produced by Liuzhou Motor is another bright spot for the company. With a delivery of 65,551 units through November of this year, Liuzhou Motor is now the top MPV manufacturer in China. Next year, it plans to launch another MPV model targeting private entrepreneurs.

But Liuzhou is not just filled with auto manufacturers. Its success in selling autos has been a boon to auto parts makers.

Xiong Shaofei, vice-chairman of Guangxi Fangsheng Group, a local parts company, says the local automakers have offered them a shelter in the bad market climate.

"Liuzhou has several important auto companies including SGMW, Liuzhou Motor and Liugong Machinery Co, which lend plenty of room for our sales," he says.

Fangsheng Group is a major axle and mold manufacturer in Liuzhou. In 2011, the company earned 40 billion yuan; Xiong estimates this year will close with similar revenue figures.

But Huang says auto parts companies have to upgrade their product lines.

"Currently, most companies depend on cheap labor and are still expanding at a low level," he says.

The key for Fangsheng is the bus sector. After collaborating with a South Korean axle company affiliated with Hyundai, Huang says that its products have seized more than 60 percent of the long-bus market (buses longer than 11 meters). Major bus companies including Yutong and Golden Dragon are using axles produced by Fangsheng.

But Fangsheng still needs to purchase key components from foreign companies, Xiong says. "With labor costs rising fast, we face a slimmer and slimmer profit margin in the future," he says.

Xiong says the company is now investing 1-4 percent of its annual revenue into its axle division. The company is also helping clients design their own molds, a departure from previous years of casting molds for automakers.

"We cannot always compete at the bottom level of the value chain," Huang says. "That's why we partnered with Hyundai axle affiliate, because we don't have enough time to start from scratch."

Innovation and new research and development efforts are not, however, just limited to the city's automakers and auto parts manufacturers. Officials with the Liuzhou government say there isn't room for more auto companies or the expansion of existing ones. It is in the process of building an "auto city" to house major auto companies, fitting them with schools, manufacturing plants, dormitories and office space in Liuzhou's suburban areas. The government is investing 20 billion yuan in the project.

An area of 203 square kilometers is planned for the new auto city. By 2015, it is predicted the auto city will have a combined production capacity of 1 million vehicles per year.

Since 2009, when plans for the auto city were put into effect, the so-called auto city has given a glimpse of what it will look like. From its origins as a vast land of sugarcanes, numerous buildings and plants have been erected through November.

The government also requires that companies move their research and development divisions to the auto city in an effort to make it more than just a manufacturing site. SGMW has already moved more than 3,000 R&D researchers to the site.

He Huanquan, head of the auto city management committee, says adequate talent supply is crucial for auto companies to develop further. The Liuzhou government has planned a campus area of up to 1,000 hectares to accommodate four schools, including universities and vocational schools.

The committee also signed an agreement with Oxford University, pledging to introduce 50 European auto companies in the next five years.

"Supply chains are essential for auto companies. As SGMW decided to build another manufacturing center, more than 50 parts companies have decided to follow up," he says.

The government plans to invite service companies to the auto city, including a test and inspection center to supervise product quality. "Auto financing is still in its infancy, but the government is talking with banks to set up auto development funds to help auto parts startups."

Contact the writers at wangchao@chinadaily.com.cn and huoyan@chinadaily.com.cn

Huang Feifei in Nanning contributed to this story.