China's struggling automakers jump on SUV boom

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  Landwind X5 SUV at the Shanghai International Automobile Industry ExhibitionAP

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  Great Wall H7 SUV at the Shanghai International Automobile Industry ExhibitionAP

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BYD is known for electric cars but this year's flagship model is the S7, a gasoline-powered SUV. It comes with an interior air purifier, radar to help with backing and digital TV. An onboard hard drive can hold 1,000 films.

This is China's Year of the SUV. Whatever their specialties used to be, automakers ranging from global brands to China's ambitious rookies are scrambling to cash in on the explosive popularity of sport utility vehicles.

"We are selling vehicles that have extensive technologies," said Isbrand Ho, BYD's director of export sales. "These are all on ... premium models for European marques but we are making it available to the everyday person."

The SUV boom clashes with Beijing's efforts to push automakers to develop electric cars and to sell smaller vehicles to help curb smog and demand for imported oil. But the SUV's image of safety appeals to prosperous Chinese drivers who face chaotic city streets while electrics from BYD and other producers struggle to attract buyers.

The fatter profit margins for SUVs are a financial lifeline to a Chinese industry that is being squeezed as global brands make inroads into their market for smaller cars.

"You've got almost everyone targeting SUVs," said analyst Namrita Chow of IHS Automotive.

SUV sales in China rose 20 percent last year to 2.5 million vehicles, more than double the 8 percent growth of the overall auto market, according to LMC Automotive. SUVs made up 18 percent of all vehicles sold.

That market share could rise as high as 25 percent in coming years, according to Yale Zhang, managing director of Auto Foresight, a research firm in Shanghai. That would be double the size of SUVs' 12.5 percent share of the U.S. market last year.

Overall, Chinese drivers bought more than 19 million cars last year while Americans bought 14.5 million. The United States still is the biggest market in financial terms, though China is expected to pass that soon. By 2020, automakers and analysts expect China's annual sales to rise from current levels by 13 to 14 million vehicles — more than all growth in the U.S., Brazil, India, Russia and the Middle East combined.

In China, General Motors Co. expects annual SUV sales to reach 4 million by 2020, said Bob Socia, president of GM's Chinese arm.

"We are focusing on two key markets — luxury cars and SUVs," said Socia. "They used to be considered niche markets but now they are mainstream."

Global automakers are redesigning SUVs for China with smaller engines in response to government taxes based on engine size.

Ford Motor Co. plans to manufacture two of its four SUVs, the EcoSport and the Kuga, in the southwestern city of Chongqing. Its Edge SUV will be imported from Canada and the Explorer from the United States.

"We now have our full range of the SUV family here," said David Schoch, Ford's president for the Asia-Pacific region.

Italy's Fiat SpA, a latecomer to China, is hoping an SUV will help it gain a foothold in a market where it set up its first joint venture just three years ago. The Freemont, based on the Dodge Journey, was unveiled at last month's Shanghai auto show.

Also at the auto show, global automakers including Mercedes Benz and Nissan and local brands such as Geely Holding Group, which owns Sweden's Volvo Cars, and Great Wall Motors Co. showed new SUVs or SUV concept vehicles.

The SUV boom is a detour from Beijing's automotive master plan for China to become a leader in electric cars.

Chinese leaders want to clean up smog-shrouded cities and rein in reliance on oil and gas imports they see as a strategic weakness. Rising gasoline demand as auto ownership spreads pushed China past the United States to become the world's biggest energy consumer.

In 2009, Chinese leaders set a goal of producing up to 5 million electric vehicles a year by 2020 but have informally backed away from that after development proved tougher than expected. BYD, the Chinese leader in electric vehicles, sold just 1,700 electric cars and 700 electric buses in 2012 and says it expects to triple that this year.

"They're going to continue to push it. But it hasn't taken off like they had planned," said GM's Socia. "Progress has been a little slow."

A few Chinese SUV buyers drive off-road, but most see them as protection against traffic.

"Chinese consumers love SUVs. They see them as safe family cars," said Chow of IHS Automotive. "The idea is, If I buy the best I can afford, I am buying the safest."

The SUV boom could be especially important to China's own automakers, who are struggling as global rivals launch new models aimed right at their traditional low-price market segment.

Because they are bigger and heavier like trucks, SUVs are treated more leniently by government rules on fuel efficiency and emissions. That makes them less expensive to produce and helps automakers that are less technologically advanced than foreign rivals.

Great Wall has become the Chinese industry's breakout success on the strength of its SUVs.

The company, headquartered in Baoding, an industrial city southwest of Beijing, said SUV sales in the first three months of the year rose 95 percent over a year earlier and accounted for half the 180,000 vehicles it sold.

That gave Great Wall, at least temporarily, the global auto industry's fattest gross profit margin at 28 percent, according to Bernstein Research analyst Max Warburton.

With its electric car business sagging, BYD is stepping up emphasis on SUVs. In addition to the S6 and S7, it has two more on the drawing board.

The company, in which Warren Buffett's Berkshire Hathaway Corp. owns a 10 percent stake, blamed intense competition for a 94 percent plunge in last year's profit last year.

BYD expects to double this year's S6 sales in foreign markets such as Russia and Egypt to 50,000 vehicles, said Ho, the export director.

"The SUV market has a big attraction in Russia, Ukraine, the Middle East. They want a four-wheel-drive for the snow and sand," he said.

The company also is developing four-wheel-drive technology that powers two wheels with an internal combustion engine and two with an electric motor, eliminating the need for a drive train that takes up floor space, Ho said. He said the electric motors also will act as brakes.

"This is going to be a unique approach to four-wheel-drive," he said.

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China's Christians see mounting persecution in country's effort to disband churches, report finds

Christians and human rights advocates are alarmed over an aggressive crackdown on house churches in China, where the faithful are forced to call their gatherings "patriotic" assemblies or sent to prison where they can face torture, according to a new report.

Cases of the government persecuting Christians rose 42 percent last year, amid a three-phase plan by Beijing to eradicate the home-based churches, according to China Aid, a Texas-based human rights group. Experts say the Communist Party in China has long felt threatened by any movement that galvanizes a large sector of the population, fearing it could wield political clout. But the nation has become more systematically hostile to worshippers, according to Bob Fu, China Aid founder and president.

“This is very serious stuff.”

- Bob Fu, founder and president, China Aid

“There have been new tactics of persecution as well, especially with the government using secret directives and memos with long-term, step-by-step strategies to eradicate house churches,” Fu told FoxNews.com. “This is very serious stuff.”

Last year, the government mounted a new three-phase approach designed to wipe out unregistered house churches by forcing them to join the official "Three-Self Patriotic Movement" and stop defining themselves as churches. The phase included having China's State Administration for Religious Affairs secretly investigate house churches and create files on them, the report found. The current wave of crackdowns, which began midway through 2012, is part of the second phase, according to Fu.

Fu said the government is using a wide array of subtle and ham-handed tactics to persecute Christians, targeting house church leaders and churches in urban areas.

“Instead of using law enforcement officials directly to attack churches, last year we found they used a softer approach,” he said. “They used utility companies, service committees and neighborhood committees to terminate contracts with rental facilities and cut off electricity and water [to the churches].”

Those semi-official agencies, including industrial and commercial affairs departments, used various excuses to “harass, interfere and ban” church services.

“In most cases, they did not take anyone into custody, or detain or sentence, and even if a person was in custody, he was quickly released,” the report found. “The unrelenting persecution of Shouwang Church in the past nearly two years has been conducted in this manner. For example, landlords were pressured to terminate lease agreements with church members, church members who had purchased real estate were unable to take possession of them, church leaders were placed under house arrest and church members were evicted — all of which was done to make it impossible for the house church to operate normally so that it would eventually disband.”

At least 132 cases of persecution affecting 4,919 Christians, including 442 church leaders, were reported last year, up from 93 cases and 4,322 Christians in 2011, respectively. The number of people detained (1,441) and sentenced (9) also increased from the year earlier, the report found.

A total of 62 cases — the highest countrywide — were reported in Beijing, according to the report, affecting 934 Christians, followed by 11 cases in Xinjiang in northwest China that affected 382 Christians. Fu said the systematic targeting of the estimated 80 million Christians living in China has become commonplace.

“It has almost become routine and that’s the danger,” Fu said. “And when the Chinese government purposefully uses this kind of soft approach, the foreign media in Beijing won’t be able to report it and the government is essentially taking advantage of the passive obedience by the church folks. If it happened to other social groups, there would be large demonstrations.”

Fu said his most pressing goal is to educate the millions of people in the United States and China who are unaware of the rampant persecution.

“Many people, especially in China, don’t even know there are really hundreds and thousands of their fellow Christian brothers being persecuted,” he said. “If a country like China shows it does not respect its own citizens and their most basic freedoms, we should be on alert and take more action from our side in the United States to advance that.”

Fu, a 45-year-old scholar and activist born in China, ran a house church himself in Beijing until he and his wife, Heidi, were arrested for doing so in 1996. He fled to the United States a year later and made national headlines last year while championing the plight of Chen Guangcheng, a blind lawyer and dissident who fled house arrest to take refuge in the U.S. Embassy in Beijing as then-Secretary of State Hillary Rodham Clinton arrived in Washington for talks with Chinese officials.

Fu described himself as Chen’s “ambassador” at the time and was instrumental in China’s ultimate decision to grant Chen, his wife and the couple’s two children, U.S. visas in May. Chen, 41, remains in New York and speaks with Fu on a regular basis, he said.

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