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The Flyer was designed by Chinese engineers, but at least two other companies are suspected of trying to cut costs through a time-tested Asian shortcut: copying Western designs. Analysts once considered cars too sophisticated to knock off. They were underestimating Chinese ingenuity. In 2002 a Volkswagen-like subcompact made by a small company in Anhui province now called SAIC-Chery Automobile began appearing: it was made with components provided by suppliers that were believed to have signed exclusive deals with Volkswagen's joint venture. More recently, Chery has run afoul of GM by releasing a car, called the QQ, that looks almost exactly like a GM model--the Spark--that didn't hit the Chinese market until December. PSA Peugeot Citroen, the French maker of the successful Citroen sedan in central China, faces a similar problem. A local producer called Shanghai Maple introduced a model that looks startlingly like the Citroen: same body, same interior, even the same way of tooting the horn from the turn-signal toggle. "It's exactly the same as the Citroen except half the price," boasts Liu Xiaojun, a Shanghai Maple dealer in Beijing. Citroen suspects that Shanghai Maple poached its suppliers and says it is considering legal action.
The effects of hypercompetition in autos are working their way through the system. The cost of a sedan dropped 9% last year in China. And although the country's soaring demand for metals has caused a sharp increase in raw-materials prices this year, overinvestment could eventually cause prices to collapse there too. A metals trader in the U.S., for example, hangs on his wall a world map with black dots indicating the location of aluminum plants. Most producing countries have five or six dots; China has 130. "China is building smelters like McDonald's opens restaurants," says the trader, who asked not to be identified. He's worried, because China used to be a net importer of aluminum before starting to export and driving down world prices. China exported 621,000 tons in the first nine months of 2003, and far more could hit the market in coming years.
The same scenario of "too much, too soon" applies to a range of commodities. At Anyang Iron & Steel, one of China's biggest steel producers, the company's vice chairman, Wu Changxun, points to a tremendous dirt expanse outside the factory. Workers are erecting a new foundry there that will more than double the plant's output capacity. It is slated to provide part of the 50 million tons in increased capacity expected nationwide by 2005. "Banks are offering us loans even without our asking," says Wu. That money will have to be repaid. Letting extra capacity sit idle is no option. If the economy cools down and demand drops, "all that excess steel could hit world markets and send prices into a death spiral," says Brian Levich, senior steel analyst at the London-based Metal Bulletin Research.