China’s Auto Industry Hits Top Gear

By the end of 2006, China is expected to over-take Germany as the world’s third largest producer of cars and vans, with output to reach about 5.9 million units compared to 5.38 million units for Germany. While the US and Japan are still the world’s largest producers with output of 11 million and 10.63 million units respectively, China is inline to be the next top global auto-manufacturing hub.

Between 2000 and 2005, China experienced an average of 40 percent growth in export of vehicles and auto parts, with the export of completed cars growing at 70 percent per annum. In 2005, exports reached USD10.9 billion and are targeted to reach USD70 billion by the end of 2010. Nevertheless, China’s export of vehicles and auto parts represents only 1 percent of the world’s market share, signifying the massive potential that is still open to car manufacturers, in particular foreign joint ventures on the mainland. Currently, Chinese-made automobiles are mostly sold to emerging markets such as Russia, South America, Africa and the Middle East.

In recognition of such market potential, the Chinese government has been quick to adopt measures to build the reputation of the industry and incentives to attract further investment in the sector. On 1 July 2006, China reduced its import tariff on light vehicles and small buses from 28 percent to 25 percent, and the tariff on import of auto-parts was reduced from 13.8-16.4 to 10 percent, which is in line with WTO entry commitments.

There are also plans to develop eight automobile export bases with the hope of raising quality standards, encouraging technical innovation as well as protecting intellectual property rights. The eight national bases, which cover 160 manufacturing companies are located in Changchun, Shanghai, Tianjin, Wuhan, Chongqing, Xiamen, Wuhu and Taizhou.

Another measure to help raise the quality of Chinese-made automobiles is to only allow “authorized” manufacturers to engage in exports starting in 2007. Those that fail to guarantee product quality or after sales service would be banned from exporting.

As it stands, foreign automotive joint ventures in China are best positioned to take advantage of this enormous market potential. With their strong design capabilities, low cost base and a network of sales channels overseas where they can increase market share and improve profit margins.  
 
 

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