Reinvesting in China is mandated by an industrial policy that in practice requires it .

Ford Motor Company and its government dictated partners are building new engine plant in China that is due to open in 2013. With the additional capacity of 400,000 units at the new facility, Ford’s joint venture, Changan Ford Mazda Automobile Ltd (CFMA), is more than doubling its existing engine capacity of 350,000, to 750,000 engines annually.

Ford Motor Company CFO Lewis Booth joined Chongqing Mayor Huang Qifan, Chongqing New North Zone Administrative Committee Director Xiong Xue, Chongqing Changan Automobile Company chairman Xu Liuping, as well as Ford China chairman and CEO Robert J. Graziano in Chongqing at an official signing ceremony over the weekend.

China is now by far the world’s largest auto market, and Chinese industrial policy in effect requires that all profits earned there are reinvested in the country and its local partners. The U.S. remains alone among industrialized nations – with elected or totalitarian governments – without any such job and investment protecting policy.

The $500 million (RMB 3.4 billion) investment will be funded entirely by CFMA and will be located in Chongqing’s so called New North Zone.

CFMA is a three-way joint venture among Changan Motors, Ford Motor Company and Mazda Motor Company.

The announcement comes as U.S. President Barack Obama called out the Communist Chinese government last week, saying that the U.S.-China economic relationship must be a “two-way street.” The beleaguered Administration was referring to what critics have maintained for years is a severely undervalued Chinese currency. Such “beggar thy neighbor policies” create jobs in China at the expense of U.S. jobs.

With the U.S. economy ailing with unemployment at levels not seen since the Great Depression, the upcoming mid-term elections are looking like a moratorium on U.S. industrial and political  practices, which critics say export jobs and run up mind boggling deficits. Both charges are tough to refute given the trade deficit and unemployment  data.

While President Obama claims that the Yuan is valued lower than market conditions would say it should be, the reality is that he can do little about Chinese currency manipulation given the huge amount of U.S. government debt the Chinese now hold and Republican party opposition to any Democratic initiative whatsoever, including  Chinese sanctions or tariffs.

“This new engine plant will help power our ambitious expansion plans here in the world’s largest automotive market,” said Joe Hinrichs, Ford’s president, Asia Pacific and Africa

CFMA currently has two vehicle assembly plants, one in Chongqing and the other in Nanjing. Last September, CFMA broke ground in Chongqing for its third vehicle assembly plant, which will start producing the new Ford Focus in 2012.

Ford Motor Company’s other partner in China, Jiangling Motors Corporation in Nanchang, makes commercial vehicles, including the Ford Transit, one of the best sellers in China’s light truck segment. JMC recently broke ground for a new commercial vehicle plant with an investment of $300 million this July.

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