Raise the Red Flag: No More Audis For China’s Cadres? Bring Back the Hongqi!

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In a city where bicycling was the dominant form of transportation a decade ago, Beijing is now home to over five million cars. That milestone was reached later than expected after officials instituted a lottery system for drivers license plates.

The massive increase in car ownership has China now seeing the development of the kind “car culture” details commonplace in car-dominated nations like the U.S. McDonald’s just announced that about 100 of the 225-250 new China locations it will open in 2011 will have drive-thru access.

But the car-buying pace is slowing, up only 5 percent in 2011, a year with sales of 18 million autos. Now, the state is focusing on transforming the Chinese car driver to a driver of Chinese cars. It’s an effort that has some buzzing about the phoenix-like rise of an iconic Chinese auto brand — the Hongqi.[more]

Signaling that the state wants to see Chinese carmakers doing better than their foreign and joint-venture counterparts in the domestic market is a recent edict that all state-owned vehicles must be domestic brands. The state’s car fleet is itself a smaller nation’s total market, accounting for 5.2 million vehicles, or, in 2010, 80 billion yuan ($12.7 billion) worth of vehicles. The result of the new rules were felt immediately. As Bloomberg reports:

“Dongfeng Automobile jumped 10 percent, the first time it climbed by the daily limit since November 2009, and traded at 3.81 yuan as of 9:46 a.m. in Shanghai. FAW gained 4.9 percent to 10.78 yuan in Shenzhen. Great Wall Motor Co. (2333) rose 3.6 percent to 14.51 yuan, set for the highest close since its Shanghai share sale in September.”

This new government leg up to the domestic industry is “greater than expected,” and aims to make homemade brands competitive.

Foreign automakers which have long enjoyed the largess of Communist Party officials will be hit hard by the new rules. Audi, a favorite of Party officials, will probably be hit hardest of all. In 2009, a full 20 percent of Audi’s China revenue was from sales to state officials. VW, Audi’s owner, accepted the news “with regret,” stressing that the lion’s share of China sales are private. Indeed, the government fleet makes up only 4.5 percent of all auto sales.

One U.S. brand that may be especially hurt by the new rules: Buick, which had been on the rise as the hot new luxury car, in part because important officials were beginning to see its charms. The halo effect from government sales that both brands enjoyed in the private market will now be gone.

What better time, then, to bring back the Red Flag?

Built in 1958, the Hongqi (Red Flag) was based on a 1950s Chrysler and boasted a V8 engine producing 197 horsepower. The limousines were known as the “Chairman Mao car” even though the leader did not actually ride in one until 1972.

Hongqis were made until 1981, and between the 1980s and 2006, the “Hongqi” brand was used in conjunction with joint-venture models with Audi and Lincoln. In 2006, a Hongqi based on a Toyota model bombed.

Now, China FAW Group Corp., maker of the original Hongqi, has received $280 million to retool and introduce the C131, an all-new Hongqi. The car hopes to take advantage of party official bias — and even take on Google’s driverless concept car. In fact, the new Hongqi is based on… the Audi A6.

Find out more about the Hongqi brand below.

[Archival image via]

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