Mainland automobile company Zhongda International Holdings plans to set up plants in foreign countries to manufacture automobiles to combat rising costs and fierce competition at home.

The Zhejiang-based and Hong Kong-listed firm - which trades auto parts and makes bus and auto maintenance equipment - will establish plants in four more foreign countries to produce auto parts, Executive Director Allen Kwok told China Daily, without giving a timetable.

"Russia is on our radar because we're now exporting vehicle components to that country," Kwok said.

Among other countries Zhongda has been eying are emerging markets such as Iraq, where there is a strong demand for heavy vehicles, Kwok added. Zhongda now exports auto parts to 35 countries and regions.

If everything works out as planned, Zhongda will have five overseas plants eventually, he said.

Zhongda has sealed a deal to develop a joint-venture automobile factory in Vietnam, but Kwok said construction was delayed by six months because of economic instability. Hyper-inflation and huge capital outflow plagued the Southeast Asian country since May as a result of overheating investment and global financial upheaval.

However, Kwok said the recession will reduce the cost to build the plant in Vietnam.

Zhongda's foray into overseas markets came at a time when mainland auto makers are vying with each other for bigger market shares under rapidly rising production costs.

The company now has an 80 percent share in the mainland's double-deck bus market, but Kwok said the domestic business environment is "getting tougher".

The steel price, a major raw material for making cars, has surged by 70 percent this year, Kwok said.

"Steel accounts for 60 percent of our production costs, but we haven't passed on the costs to our customers... We won't take any decision unless larger auto parts makers such as Yutong and King Long take the lead to raise prices."

The plans to set up factories overseas are aimed at boosting Zhongda's manufacturing business, as profit margins for trading business are low.

The gross profit margin of making maintenance equipment stands at 18 percent and that of making automobiles is 14 percent. Both are far higher than the 3 percent from trading business.

Domestically, the company purchased a 20 percent stake in Zhongwei Bus from its parent group in July. Kwok said that Zhongda plans to increase its holdings of the four automobile factories under its parent group.

Zhongda has 157 million yuan in cash, he said, adding it sees no urgency to raise capital in the market.

(HK Edition 09/30/2008 page2)