A CII study quoting China Association of Automobile Manufacturers (CAAM) has indicated that most Chinese companies are now keen on selling engines as against full vehicles because of the high cost of competition in the domestic market and their inability to set up a retail network.
Domestic industry, however, feels that importing engines from China does not provide a cost advantage for a host of reasons, although sourcing auto components has potential.
Well-entrenched companies in India do not see this as an opportunity, but sourcing components may be a good idea if there is a cost advantage, Bajaj Auto vice-president RL Ravichandran told FE.
Kinetic and TVS are some of the companies which have started sourcing components from China.
According to the study, Chinese manufacturers are keen to sell 50 cc engines at $110 (around Rs 6,000) depending on technology (two stroke/four stroke).
Sourcing engines even at this price is not attractive, feel domestic manufacturers such as TVS and Bajaj Auto, as there is a huge cost involved in assembling the entire motorcycle, and manufacturing the frame, welding, and fixing the petrol tank is also a big issue.
Also, domestic market already has models such as TVS Max at around Rs 27,000 and Boxer AT priced at Rs 27,990, so the Chinese motorcycles will not be price competitive if assembled with these engines.
The crucial issue with regard to import of engines is these are two-stroke engines, which do not meet existing pollution norms in India.
If these two-stroke engines are exported to India, catalytic convertors and other parts will have to be fitted, which will increase the costs. Also, an after sales network will have to be established, Mr Ravichandran said.
The customs duty on components is 25 per cent, while full CBUs can be imported at 60 per cent into India.
Chinese companies claim to export Euro II compliant engines at a 20-30 per cent higher cost, which will make them unviable, an industry observer said.
Ruling out any onslaught on domestic industry, TVS Motor managing director Venu Srinivas said: China is not as big a threat as it seemed three years back, because their bikes do not meet pollution norms. Within two years in 2005, we will be moving to more stringent pollution and stricter norms. Even if they make an entry in 2004, after a year whoever buys will be saddled with obsolete technology. I do not see the Indian market getting adversely affected with Chinese two-wheelers.
While the study says that the Chinese motorcycles are most competitive in the 50cc (local price $225-270) and 125 cc ($330-380) market for exports, domestic industry dismisses it.
The entry-level pricing of Chinese motorcycles is not attractive as it works out to around Rs 27,000 per unit at $300 (Rs 14,100) after adding levies such as customs and taxes. Retail network adds 30 per cent to manufacturing, and taxes another 20 per cent, an industry player said.
China is making efforts to develop its automotive industry into a pillar industry in the national economy by 2010, according to a CII official.
Future plans of Chinese auto sector include upgrade emission and pollution norms, transfer of technology from foreign players.