A Question of Balance

Volkswagen has been active in China for over 30 years. In 2008, the Group sold more than one million vehicles there for the first time. This means that China is and will remain both a core market and a growth market for the Volkswagen Group. Environmental protection is a key challenge for China’s fast-growing economy. And it is a challenge the country’s biggest carmaker has taken up with great determination.
China is and will remain both a core market and a growth market for the Volkswagen Group. (photo)

A sea of uniformed workers riding their bicycles to work, with the red flags of Communist China and Mao’s portrait in the background. This was the picture that sprang to mind for decades whenever Westerners thought of China. However, thirty years of change and economic reform have left their mark on the world’s most populous country. And nothing symbolizes the nation’s new prosperity more strongly than owning a car. The role that automobiles play in China’s definition of its progress can hardly be exaggerated.

“We will introduce the latest generation of European engines and gearboxes in China.” Dr. Winfried Vahland, President and CEO of Volkswagen Group China (VGC) (quotation)

ENORMOUS MOBILITY BACKLOG
In the past thirty years of change, Volkswagen has contributed significantly to mobility in China – from the very first days of the now legendary Santana down to the New Bora. However, this prosperity has also come at a price: many Chinese cities are grappling with traffic problems and severe atmospheric pollution. As a result, Volkswagen Group China (VGC) also measures its success in the country in terms of the environmental compatibility of its products and factories. Its goal: by 2010, Volkswagen aims to be the most environmentally friendly automaker in China. “Environmental protection is a global challenge. The Chinese car market is recording enormous growth rates and is already the number two in the world today. This is why we, as a market leader, must take responsibility and ensure that our twin goals of growth and environmental protection above and beyond the legal requirements can be reconciled going forward”, says Dr. Winfried Vahland, President and CEO of Volkswagen Group China.

China will remain one of the fastest-growing automobile markets in the long term. (photo)

China will remain one of the fastest-growing automobile markets in the long term.

The number of vehicles on the streets of the People’s Republic is growing rapidly by an average of six percent per year. Further support for this trend comes from the fact that the government has declared individual mobility to be the benchmark for growth and prosperity. The automotive industry is considered a key sector for the enormous growth of the Chinese economy, and Volkswagen plays a major part in this: in 2008, the Group had a market share of approximately 19 percent in China and Hong Kong. Volkswagen, Audi and Škoda brand vehicles are particularly popular in China, although the premium Bentley and Lamborghini brands are also finding buyers in the growing luxury segment. Ever since it entered the market, Volkswagen has worked closely together with local joint venture partners at all levels of production. Some of the models that are now rolling off the production lines in China, such as the Volkswagen Jetta or the Golf, are almost identical to their Western cousins. Others, such as the Lavida or the New Bora, have been specially developed for China. The Chinese car market is now extremely competitive: all international top-tier manufacturers have set up joint ventures, with around 80 brands being present overall. Nevertheless, China is still a significant driver for the Volkswagen Group’s total sales. In full-year 2008, VGC and its partners sold 1.02 million vehicles in the country, an increase of 12.5 percent. This meant that Volkswagen Group China topped the one million mark for the first time in its history.

Despite these dizzying figures, though, the Group has kept a cool head. The company takes its corporate social responsibility seriously and is a pioneer when it comes to striking a viable long-term balance between economic and ecological aspects. The dramatic expansion of the Chinese economy and the increase in mobility have come at a price. The government itself puts the cost of environmental pollution at USD 200 billion a year. While the continued use of coal as a source of energy is certainly one of the main causes of environmental pollution, the rapid increase in the number of cars on the road is another contributing factor. This is one reason why, in the run-up to the Olympic Games in August, the government banned 1.3 million out of the total of 3 million cars from the streets of Beijing for the duration of the event.

All Volkswagen Group production locations are certified to ISO 14001, the international environmental management standard. (photo)

All Volkswagen Group production locations are certified to ISO 14001, the international environmental management standard.

MANY ENVIRONMENTAL ACTIVITIES IN CHINA
Today, Volkswagen and China can look back on a long tradition of partnership. Deng Xiaoping’s reforms opened up the country to the rest of the world and hence to foreign firms, which have contributed to the continuous economic boom since then. Photographs showing German Chancellor Helmut Kohl signing the first treaty at the beginning of the 1980s are a reminder of these early beginnings, which have now grown into far-reaching economic ties. To drive forward its growth, China was dependent on expertise from abroad. Since Shanghai Volkswagen opened its doors a quarter of a century ago in 1984, Volkswagen has invested €6.8 billion in China’s automotive industry. This corresponds to one fifth of all investments in the sector. The second major joint venture, FAW-Volkswagen, was established six years later in Changchun in the North of China. Since then, there have been a series of other partnerships, some of them with manufacturers of engines, gearboxes and drivetrain components. The Volkswagen locations in China are at the heart of efforts to improve sustainability in manufacturing.


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CO2EMISSIONS FROM NEW VEHICLES BY 2010


UNIFORM ENVIRONMENTAL STANDARDS
The first step towards becoming China’s most environmentally friendly automaker is compliance with environmental protection legislation. Above and beyond this, Volkswagen Group China undertook in the spring of 2007 to reduce fuel consumption and emissions for the fleet produced in the country by more than 20 percent in comparison to 2005 in the period up to 2010. To achieve these ambitious goals, Volkswagen-FAW Motorenwerke Ltd. started manufacturing the latest TSI engine range in the eastern Chinese city of Dalian in 2007. Volkswagen Group China intends to invest approximately 1.5 billion renminbi (RMB) in the production facility in the period up to 2011, bringing total production capacity to 300,000 direct-injection petrol engines per year. “Together with our partners, we have resolved to introduce the latest generation of European engines and gearboxes in China”, says Vahland. The move enables Volkswagen to comply with government fuel regulations, which specify that service stations must supply petrol and diesel that conforms to the Euro 4 standard. Beijing’s Ministry of the Environment hopes that the amended regulations will help cut sulfur dioxide emissions, which are responsible for 1,840 tonnes of acid rain per year.

The Volkswagen Group operates production facilities in seven different cities in China (graphics)

The Volkswagen Group operates production facilities in seven different cities.

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