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GM pulling funds out of China - and possibly the rug out from under itself. By Bertel Schmitt, CEO Sinamotive Group (HK) Limited.

Bob Lutz, GM's vice-chairman, said GM seriously considers moving money made from Chinese operations back home to the U.S. At the home front, cash is needed badly to keep GM from going under. There is little buyer's interest in the ho-hum Hummer brand, which GM put up for sale. Therefore, pulling profits from China appears as one of the few options left for GM.

Draining the huge, vibrant and growing China market of funds while the rest of the world tanks doesn't sound like such a good idea, but these are desperate times. "We do not rule out such a possibility under current conditions," Lutz said. (Translation: We are already preparing the transfer.)

GM had rolled up the Chinese market since they started producing vehicles here in 1999. Not so anymore. Shaking off a decade of falling market shares, the Volkswagen Group again is China's market leader in passenger vehicles. GM is also being trumped by Toyota in the passenger segment. Pulling out marketing and development funds from China sound like a recipe for disaster. However, GM has to choose between a possible disaster in China and a sure disaster at home.

Defending his budget, General Motors Corp. Asia Pacific President Nick Reilly warned that the company's vehicle sales in China fell in August and September from a year earlier. He also isn't so sure about GM's previous forecast of 11% to 12% overall sales growth in the Chinese auto market for 2008. "The market is too unpredictable to forecast with any credibility," said Reilly, ostensibly blaming the market while in reality talking to Detroit.

The move will not be popular with GM's joint venture partners, especially when cash is king and credit is an endangered species.

General Motors has several JVs in China through mergers of local companies jointly held with the Shanghai Automotive Industry Corp (SAIC) - one of China's top three automakers. SAIC also is a strategic joint venture partner of Volkswagen. Volkswagen's first Chinese car, the Santana, was built with SAIC, and it still is. If GM's money flows back to Detroit, SAIC may like the Germans even better. Volkswagen doesn't need the cash. Like a second coming of the economic miracle, the VW shares defy gravity and financial malaise, while the rest of the world is falling into economical and psychological depression.