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 is preparing to move profits from Chinese operations back home to the U.S., where cash is needed badly to make up for North American losses. The ho-hum Hummer brand, which GM put on the chopping block, didn’t get any rapid eye movement yet. So pulling profits from China is one of the few options left for GM.

Pulling the financial rug out from under the huge, vibrant and growing China market while the rest of the world is in tatters doesn’t sound like a brilliant idea. But desperate times call for desperate measures. “We do not rule out such a possibility under current conditions,” Lutz said.

GM had been the poster child of the Chinese market since they started producing vehicles here in 1999. Not so anymore. After a decade of falling market shares, the Volkswagen Group again is China’s market leader in passenger vehicles. GM is also being outsold by Toyota in the passenger segment. Pulling out marketing and development funds from China sound like a sure recipe for further retrenchment.

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 withdrawal will not sit well with GM’s joint venture partners. When cash is king and credit is an endangered species, cashing in will be extremely unpopular.

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 is also an important JV partner of Volkswagen, and if the money flows back to Detroit, SAIC may like the Germans even better. Volkswagen doesn’t need the money. Like a second coming of the Wirtschaftswunder, the VW shares defy gravity and financial malaise while the rest of the world is going to the toilet.