Bayer: optimistic about the Chinese market serving the "second hometown"

Lei Huanli, General Manager of Bayer MaterialScience China Automotive Business

The follow-up development of the Chinese market is strong, especially the second-tier and third-tier cities

Gasgoo.com: Will Bayer be optimistic about the future development of China's auto industry? what is the reason? Where are the major changes? What kind of significant impact will this change have on the auto parts industry?

Lei Huanli: In 2010, the production and sales volume of 18 million Chinese cars was encouraging, and last year it reached this number after many stimulus policies were gradually phased out. One can imagine the huge potential of the Chinese market. In the past decade or so, China's automobile industry has indeed experienced rapid development, but whether or not there will be a subsequent growth rate of about 32% is almost impossible. For example, if one predicts the growth rate in 2011, some say 10%-15%, and some even say that it may be negative growth. However, it seems that the growth momentum of the Chinese auto industry in the first half of the year is still very strong, because the market demand is still very strong.

Bayer and The Economist once had a survey and found that 80% of residents of Chinese cities who didn’t buy a car wanted to own a car. According to statistics, China now has 55 vehicles per 1,000 people, compared with 500 to 600 or even 700 in developed countries. Looking at the figures alone, there is still a big gap between China and other auto markets in the world. It also shows that the development prospects of China's auto market are very bright.

The first reason I believe that the automotive industry will continue to grow is that the proportion of the middle class continues to grow in China, which has increased the demand for cars; second, from the policy point of view, the development of the automotive industry in the 12th Five-Year Plan With a supportive attitude, if the automobile is regarded as a strategic industry, the Chinese government’s investment and support in this area should be no less. Third, after more than 10 years of development, the entire automobile industry chain has the ability to expand its own market. China's own-brand cars have been exported to many countries. For example, Chery Automobile has already exported to Australia. Can this be used as a starting point for exporting to European and American markets?

The growth of the auto industry is inevitable. As for how to grow, everyone has their own opinions. Combining the predictions of the development of the automotive market by some of the more powerful consulting companies in the past five to ten years, you will find that all forecasts are generally low.

The national "12th Five-Year Plan" emphasizes that overheating of the economy will cause some problems. At present, China’s major cities have also taken many measures to resolve traffic congestion. For the remediation of the traffic environment, the country will also have corresponding policies introduced. The reason why I am not so pessimistic about the development prospects of the automotive industry is that many second-tier, third-tier cities and even rural areas have huge market development space. They also have strong buying power. At present, most of the measures we have seen such as purchase restrictions are in Beijing. Problems in these big cities in Shanghai.

Take root in China to create "second hometown"

Gasgoo.com: There are many international parts companies that have changed China's view as a “manufacturing plant” in the world. They have set up their own R&D centers and Asia Pacific headquarters in China. How does Bayer think of the Chinese market? How do you understand "innovation"?

Lei Huanli: For a company, where is your market and where you should be.

In my opinion, Bayer is determined to take root in China. When your market is in China, the entire industry chain of this market is also here. If you want to get what you want in this market, then this market is not a simple "travel box" for you but a second "home" that you need to run. The speed of development in China is beyond the reach of this market. Because of this, you must stand in this market and make adjustments in time, from manufacturing in China to creating in China.

At present, the Chinese market has become the second largest single market for Bayer MaterialScience. In order to strengthen its commitment to the Chinese market, Bayer announced several plans to expand investment in China at the end of last year. For example, we have a Bayer Integrated Production Base in Shanghai. By 2016, we will invest more than 3 billion Euros in this base. This production base was ground-breaking in 2001 and is a world-class factory that produces raw materials such as polycarbonate, polyurethane and paint. The company plans to have a polycarbonate production capacity of 500,000 tons/year in 2016, a polyurethane raw material MDI capacity of up to 100 tons/year, and a coating raw material HDI output of up to 80,000 tons.

In addition, Bayer MaterialScience also announced at the end of last year that it will invest 110 million euros in 2012 to build five new facilities for the downstream market. These facilities include three polyurethane system material factories, a polycarbonate sheet factory and a polycarbonate color synthesis and design center. For strategic reasons, we set up these facilities near major customers in Shanghai, Qingdao, Chongqing, and Guangzhou.

When it comes to innovation, Bayer has a history of more than 100 years but still maintains a healthy and rapid development, mainly because of continuous innovation. Innovation is a very important part of Bayer. Innovation will inevitably require R&D investment. Last year, Bayer MaterialScience invested more than 230 million euros in R&D, accounting for about 2.3% of its turnover. The investment in research and development is an important guarantee for the rapid development of the company. Before this, Bayer's R&D investment was mainly concentrated in Germany and the United States. Today, Bayer has also invested heavily in R&D in the Asia Pacific region. The polymer R&D center in Jinqiao will be one of Bayer's most important R&D facilities in the world. At the same time, Bayer also provides customers with solutions for the Asia Pacific market, especially China.

The global headquarters of the polycarbonate business division of Bayer MaterialScience's three business units will be moved to Shanghai in the second half of this year. This is equivalent to moving a third of Bayer MaterialScience executives to China. At the same time, the Asia Pacific headquarters of Bayer MaterialScience's Polycarbonate Business Unit and Coatings, Adhesives and Special Chemicals Business Unit will also be moved to Shanghai. Obviously, Bayer has strong confidence in the Chinese market.