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CHINESE AUTO INDUSTRY POLICY
Didenko N.I., professor , Afonichkina N.
SPbSTU, SPb
Motor-car construction plays an important role in a country’s economy. The more it is developed, the higher is it’s GDP in a world production.
Nowadays auto construction tends to grow: there is a technological boom, increase in population, economic growth. Undoubtedly, China Automotive Market is considered to be a world’s fastest growing auto market.
In the past five years, after its accession to the World Trade Organization (WTO) in 2001, China’s automotive industry has seen a phenomenal growth. This growth was coming from a country with a steadily growing economy since the last 15 years and a vast consumer base. Currently, China is the second largest automotive market after Japan and third largest automotive producing market in the world.
The largest automotive groups are Ford, Daimler Chrysler and General Motors, which founds a ‘Great Three’. Last year world production of automotive technical equipment increased by 4% and made up nearly 70 mln cars. This volume grew due to vast development of auto industry in China.
Production in Europe has grown by only 1.1% which made 18.5 million cars. In Italy there was an increase (+23%) while in France a decrease (-12%). Russia stays on the 4th position if we take volume of vehicles into consideration. Exhibit 1 shows the world production of Light Vehicles. It is clear that by 2014 the part of BRIC will increase from 16% to 23% and this is forecasted for China to raise the percentage.
2006 vs. 2014 (percent)
2006 2014
2006 = 652 million units 2014 = 77.6 million units
BRIC = Brasil, Russia, India, China EU = European Union
NA = North America
RoW = Rest of the World
Source: PwC Automotive Institute 2007 03 Data Release
Exhibit 1. World Production of Light Vehicles
General Description of Chinese automotive market is following. Last several years world enterprises invested in Chinese auto industry more than 20 billion USD. Today there are 200 car plants all over China, basically on a west coat.
Key Findings. China’s motor vehicle production and sales increased by 25% over the
year 2005 and sales crossed 7 Million Units in 2006.
Per 1000 people passenger car penetration of China is around 10-15 units in 2007. Still it’s significantly lower than other countries.
Statistics show rising auto sales were mainly driven by sales of sedan cars - passenger cars excluding SUVs and MPVs - which grew 36.89 percent to 3.83 million units last year and contributed 71.4 percent to last year's auto sales increase of 1.4 million. The output of these cars grew 39.25 percent to 3.87 million.
China adopted a series of energy-saving measures in 2006 to regulate the auto market, including relaxing restrictions on small engine-size cars in big cities and raising tax rates on high-grade cars.
Per capita GDP (which is an indicator of the purchasing power) of China has risen steadily.
Export Policy. China's automakers last year produced 7.28 million vehicles, up 27.32 percent over the previous year, making the country the third largest auto producer in the world. Sales of passenger vehicles reached 5.18 million, up 30.02 percent, while production reached 5.23 million, up 32.76 percent. Output of commercial vehicles rose 15.25 percent to 2.05 million in 2006, while sales reached 2.04 million, up 14.23 percent.
The top 10 automakers accounted for about 83.9 percent of all auto sales, including Shanghai Automotive Industry Corp. (SAIC), First Automobile Works (FAW) and Dong Feng Motor Corp. (DFMC), which sold 1.22 million, 1.17 million and 932,300 vehicles as the top three sellers.
Every global automaker operating in China must still produce cars in a joint venture with a local partner. The Chinese Market is Dominated with by VW, with just a 50% market share. Toyota, Peugeot, Honda and GM are also present.
This surge in car sales has enabled many Chinese people to buy more cars. More important, it also means more jobs and a considerable boost to domestic consumption. Foreign automakers need China more than China needs any one of them: there are a dozen global automakers, but only one China market.
Automarket pattern. As production expanded, Chinese automakers lowered prices and put out new models in a mass scramble for a larger market share.
In brief, the shifts are following:
- Foreign trade expanded significantly.
- China created more jobs than planned.
- Personal incomes increased.
Analysts believe these factors explain why the country's auto sales have been growing rapidly despite rising oil prices and invalid traffic accumulation in major cities.
China and Russia. The first Chinese motor cars appeared in Russia in 2004. Today the majority of Chinese automakers consider Russia to be the key export market. The results already achieved in 2006 are quite impressive:
- The number of motor cars of various Chinese brands sold in Russia comprises nearly 20
000.
- The number of dealers of Chinese automakers amounted to 250.
- Motor cars of 10 Chinese brands are officially on sale in Russia.
- A number of Chinese automakers have either put in operation or are building their assembling facilities in different regions of Russia.
The experts’ forecast for 2007 is the following:
- There will emerge 10 more brands of Chinese motor cars in Russia
- More than 20 new Chinese brands have the potential to enter the Russian market in the near future.
- Some 30 Chinese automakers plan to invest in assembling facilities in Russia.
- The total amount of investments in these production facilities may well reach $5 billion.
Since the Chinese government announced its Auto Industry Policy in 1994 with a view to
enable the development of a strong domestic industry, the industry has grown dramatically. Since 1994, foreign automakers have invested close to US$20 billion. Billions more are planned to increase capacity by 2010.
China’s automotive policy is largely inspired from similar policies made by Japanese and Korean governments which initially employed strong protectionist policies, supporting the development of their respective auto industries.
Foreign partners say that China offers fewer incentives to them for transferring the important technical know-how and product development skills. For them it’s risky to introduce advanced technology and process know-how on a market with tight state controls, huge price sensitivity, weak Intellectual Property Rights laws.
China has major hassles such as it is highly fragmented industry. Efficient controls of proper technology transfer and product development skills and policies will ensure the creation of a strong domestic industry.
In conclusion it is necessary to note that today many forums, meeting are held to organize an effective dialogue of foreign world main automobile companies and Chinese business circles, as well as to contribute to the development of their cooperation in the automotive industry and trade.
Sourse:
1. China Daily, Coudert Brothers, Kmpg, China Hong-Kong Business; www.ChinaWindow.ru
2. Pogrebniak E. Analysis. www.icss.ac.ru
3. ‘The Rising Chinese Car Market’by Dan Lienert www.forbes.com
4. ‘Costly Car Consumption’ www.abiz.ru
5. Russian-Chinese Forum materials; www.russiachina-forum.com
6. ‘Auto Focus Asia’ by Rajeshwer Chigullapalli http://autofocusasia.com
