Transcript The Future of China’s Automobile Industry

The Future of China’s
Automobile Industry
Xingmin Yin
China Center for Economic Studies
Fudan University
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1. Introduction
 The bad economy does hit all car sales.
 Production of passenger cars and light trucks
declined from 70.9 million units in 2007 to
68.1 million in 2008. Sales figures tell a similar
story, falling from 69.5 million vehicles in 2007
to 66.3 million in 2008; the number is
forecasted to sag further to 59.2 million in
2009.
 The industry as a whole is facing an
unprecedented combination of cyclical and
structural issues.
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 The outlook is now negative across the whole
auto industry except for China.
 All the established auto makers will need to
take this opportunity, during the downturn, to
rethink their strategies and ponder what they
should be doing over the next 10 or 15 years.
 Where can the major global auto makers find
their new markets?
 How does China fit the future of global auto
industry?
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2.China’s Place in Global Automobile
 The auto industry is one of the key sectors of
Chinese economy.
 The industry continues to grow, registered 20
percent per year over the period 2002-2007;
and 13 percent in 2008.
 The China’s auto industry made over about 10
million cars, vans, tracks and buses in 2008.
 Changes of the global league table over the
period 2000-2007.
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The Global League Table
2007
Vehicles(‘000)
Share(%)
2000
Vehicles(‘000)
Share(%)
1. Japan
11596
15.85
1. USA
12800
21.93
2. USA
10780
14.74
2. Japan
10141
17.37
3. Germany
5527
9.49
3. China
8882
12.14
4. Germany
6213
8.49
4. France
3348
5.74
5. Korea, Rep. 4086
5.59
5. Korea, Rep.
3115
5.34
6. France
3016
4.12
6. Spain
3033
5.20
7. Brazil
2971
4.06
7. Canada
2961
5.07
8. Spain
2890
3.95
8. China
2069
3.54
9. Canada
2578
3.52
9. Mexico
1936
3.32
10.India
2307
3.15
10.UK
1814
3.11
Others
17834
24.38
Others
11630
19.89
Global Total
73153
100.00
Global Total
58374
100.00
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New Development in 2008
 Japan was the undisputed leader in light
vehicle production in 2008, at 11 million.
 U.S. output dropped by 2 million to 8.5 million
(and may fall as low as 6.3 million in 2009).
 China edged into second place with 8.52
million (with 10 million projected in 2009).
 In fourth place is Germany, with 5.8 million
vehicles, down from 6 million.
 Korea, Brazil, France, Spain, Mexico and
Canada accounted for the remainder of the
top-10 light vehicle makers in 2008.
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China’s Share of Global Auto Production
%
14
12
10
8
6
4
2
0
2000
2001
2002
2003
Vehicles
2004
2005
2006
2007
Passenger Cars
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 Clearly, China’s share of global auto production
has been increasing since 2000.
 In total, China will produce roughly 11 million
vehicles in 2009, up from 10 million the year
before.
 Somewhere around 2010-2012, China will
surpass Japan as the world’s largest auto
producers.
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3. Capacity Expansion
in Auto Industry
 A big shift in the global auto industry
 While global players are turning to the
emerging markets such as China for profits
they can no longer realize in the United States,
Europe and Japan, domestic manufacturers in
China are building up their own auto industry
with technology transferred by the
multinationals through joint ventures.
 Discussion on development strategies for
homegrown auto makers in the past years.
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3.1 Homegrown Auto Makers
 Industry policy on JV.
 Currently, about 65 percent of cars made in
China are manufactured by non-Chinese
companies.
 But multinational auto makers also face keen
competition from homegrown manufacturers in
China.
 Can Chinese homegrown auto makers survive
in their competition with leading multinationals?
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 Chinese manufacturers like Shanghai
Automotive Industry Co. (SAIC), Chery
automobile Co., Geely Automotive Holdings,
Dongfeng Motor Group, Great Wall Motor and
BYD Automobile make and sell their own
independent brands.
 Some homegrown manufacturers have even
begun exporting and established overseas
plans to enter the global markets.
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Growth of Homegrown Auto Production
Group
2003
2004
2005
2006
2007
FAW
556
587
639
394
691
Beijing Automobile
262
539
559
298
454
Dongfeng Motor
368
442
593
258
437
Chery
101
/
186
319
428
SAIC
228
309
518
207
313
Hafei
200
206
225
265
231
Geely
/
92
150
207
217
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Group
Anhui Jianghuai
Great Wall
Jiangxi Changhe
BYD
Sub total
% of Total
Total
2003
2004
2005
2006
2007
94
131
167
63
210
/
55
68
40
123
118
104
116
137
112
/
/
/
60
101
1921
2465
3121
2247
3316
43.24
48.42
54.07
30.87
37.31
4444
5091
5705
7279
8889
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 Very significantly, both the production of
automobiles, and in the related auto-parts
industry, China’s auto makers are pushing for
influence both within China’s expanding
domestic market and through exports,
particularly through partnerships with foreign
companies.
 It is possible to judge that homegrown auto
makers will grow up in the booming markets.
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3.2 Global Value Chain:
Learning by Ex-Importing
 Export-oriented industrialization theory has
had a significant impact on China’s automobile
indusial policies, especially since China’s entry
into the WTO in 2001.
 The Chinese automakers are getting in the
world auto industry and are going to affect
some automakers more than others.
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China’s Auto Ex-Imports
USD million
16
14
12
10
8
6
4
2
0
2000
2001
2002
2003
2004
Imports
2005
2006
2007
2008
Exports
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Vehicle Exports
 The export amount of vehicles from USD1.34
billion in 2000 to USD9.6 billion in 2008.
 Will China’s exports of vehicles follow the
model of Korea in the coming decade?
 If experience or history teach anything, it takes
10 to 15 years for a foreign auto maker from a
developing country to be a serious contender in
a developed market.
 It is noticed that one of the biggest Chinarelated shifts thus far is not in the production
of automobiles themselves, but the exports of
parts and components.
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Ex-Imports of Auto Parts
USD million
16
14
12
10
8
6
4
2
0
2000
2001
2002
2003
2004
Imports
2005
2006
2007
2008
Exports
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Auto-Parts Exports
 This boom in Chinese parts exports, coupled
with the many multinational automakers now
setting up shops in China, has convinced
virtually every first-tier parts supplier to open
extensive operations in China. Major first tier
suppliers include Bosch, Delphi, Valeo, Denso
and Siemens, et..
 By 2002, virtually all of the major global
assemblers had established major operations in
China. VW and GM led the way, the three
largest Japanese assemblers and major Korean
firms strove to make up for lost time.
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 China’s exports of auto parts continue to
increase from USD1.12 billion in 2000 to
USD14.82 billion in 2008. This performance is
better than that of vehicle exports.
 In results, China is becoming the largest
production base of global auto parts and
components.
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3.3 Production Chain with Regional
Diversity
 Geographical distribution of homegrown auto
makers.
 A wave of large-scale industrialization has been
expanded into major regions in China.
 Diversified production bases have been
strengthened in China’s automobile industry.
 Five auto-production clusters spread over
China: Yangtze Delta: 31%; Pearl Delta:
17.53%; Bohai Ring: 16.8%; North-East: 16%;
Hubei & Chongqing: 14.72%.
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Regional Auto Production (‘000)
Region
2003
2004
2005
2006
2007
%
Beijing
73.3
182.2
220.9
270.2
202.8
4.23
Tianjin
172.5
219.8
325.6
410.3
454.3
9.47
Shangdong
38.0
50.2
87.0
106.7
151.8
3.16
Shaanxi
20.1
17.2
16.1
59.1
100.4
2.09
Liaoning
33.9
37.3
16.9
89.1
148.6
3.10
350.7
337.1
299.4
401.4
576.8
12.02
32.4
28.7
49.9
68.1
42.5
0.89
Jilin
Heilongjiang
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Regional Auto Production (‘000)
Region
2003
2004
2005
2006
2007
%
Shanghai
574.3
549.9
480.9
665.6
801.5
16.71
Jiangsu
84.2
89.9
141.6
146.0
114.9
2.40
Zhejiang
20.1
80.8
114.2
152.1
175.4
3.66
Anhui
124.8
79.6
181.6
275.7
328.9
6.86
Jiangxi
/
26.8
45.0
64.9
65.8
1.37
Fujian
35.7
27.9
37.0
34.4
40.0
0.83
117.2
266.5
368.6
508.0
726.3
15.14
42.6
53.5
58.8
67.9
114.5
2.39
Hubei
171.6
88.0
141.7
240.5
294.8
6.14
Chongqing
120.6
157.3
153.3
263.0
411.8
8.58
Guangdong
Hainan
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 The contribution of leading auto multinationals
to the homegrown auto industry, especially in
Yangtze Delta and North-East region.
 The unified auto and auto-parts production
system will be consolidated, based on the
technology diffusion from leading auto
multinationals.
 Advantages in diversified regional production
system.
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3.4 Brief Comments on Auto-Industry
Stimulus Policy
 The auto-sale tax reduction, with the current
10% rate to be cut to five, or even zero for one
or two years;
 To promote car sales in rural and remote areas,
with such measures to boost sales of smaller
sedans and light-duty trucks suitable for
narrower roads in less-developed regions;
 To subsidize vehicle purchases to replace older
models, this measure would benefit fleet
operators.
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4. Growth Drivers for Auto Production
 A growing economy is real good news for auto
production.
 In China, annual economic growth averaging
10 percent over the past decade has made cars
affordable to more people.
 Is it possible for China to keep a ballooning
demand for vehicles?
 Citizen’s income is quite difference among
various regions due to China’s huge size and
geographical diversities.
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China’s GDP per capita
USD
4500
4000
3500
3000
2500
2000
1500
1000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GDP per capita
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 GDP per capita is a good indicator for the
estimation of production and sales in terms of
market demand.
 China’s GDP per capita will be about USD 8,000
in 2015.
 An advantage for auto production and sales in
a low level of vehicle fleet in China.
 Another advantage in regional difference:
coastal areas vs. inland and western regions.
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Civil Vehicles in Regional Use
Region
Jiangsu
Zhejiang
National
Year GDP per Vehicles
capita
’000
V/P
Passenger Cars
’000
C/P
2003
2030
1317.7
1.78
483.6
0.65
2007
4465
3301.0
4.33
1620.3
2.13
2003
2430
1358.2
2.98
521.0
1.14
2007
5000
3032.7
6.51
1612.1
3.46
2007
3100
43584
3.30 29616.5
2.24
GDP per capita: USD.
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 As for 2008, it is estimated the global fleet at
619.5 million light-duty vehicles, China only
accounted for 7%.
 Possession ratio of vehicle to population
increased from 1.24% in 2000 to 3.3% in 2007.
 Possession ratio of passenger cars also
increased from 0.67% to 2.4% over the same
period.
 As for Japan, this ratio is at 49.21%, higher
than that of the US (47.52%).
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Vehicles in Use: International Comparison
Country
Year
Per
capita
Vehicles in fleet Passenger Cars
’000 V/P(%)
’000 C/P(%)
China
2000
840
15761
1.24
8537
0.67
2007
2500
43584
3.30
29617
2.24
Japan
2000
35420
72653
57.27
62438
49.21
Korea
2000
9010
12040
25.61
8084
17.20
Brazil
2000
3630
28975
17.03
23242
13.66
Germany
1999
25690
44874
54.66
42324
51.56
USA
1999
32260
214775
77.07
132432
47.52
India
1998
440
8120
0.81
5056
0.51
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 Will China catch up with Brazil and Korea’s
level of vehicle in society use?
 If China’s GDP per capita will be as high as that
of the developed economies, can more vehicles
be sold out in coming years?
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5. The Future of China’s Automobile
Industry
 Car companies are concerned about what some
of them called “the most affluent factor” to auto
industry----a strong economy.
 It is estimated that the Chinese market is
expected to account for some 35 percent of all
global auto sales growth during the next
decade.
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Auto Production Growth
’000
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
2000
2001
2002
2003
Vehicles
2004
2005
2006
2007
2008
Passenger Cars
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 The auto production increased from 2.34
million in 2002 to 10 million in 2008. As for
market share, China accounted for 13.41
percent of global vehicles in 2008.
 It is reasonably forecasted, that the China’s
auto production and sales will be around 25
million units in 2020.
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The Estimation of China’s
Automobiles
2000
2007
2020
950
2,500
12,000
2070
8888.9
25000
607
4997.8
18000
Vehicles
3.54
12.32
20.00
Passenger cars
1.48
8.52
18.28
5839.24
4098.79
7217.85
5630.11
124500
95712
GDP per capita (USD)
Auto Production
Vehicles
Passenger cars
China’s share of global (%)
Global auto production
Vehicles
Passenger cars
Unit: ’000.
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Markets, Markets and Markets
 It’s going to be much more important to see
how Chinese consumers there are thinking
about or rethinking their purchases of cars and
looking for the next five years or so.
 What kind of cars is popular? Large and
midsize cars sell well in China. This means that
car manufacturers reap larger profits from
bigger vehicles that sell in China.
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 GM’s joint venture in China will spend $1 billion
a year over the next five years to keep up with
the explosive growth in China’s auto industry.
 GM, sold more than one million Cadillas, Buicks
and other models there in 2008, a more than
150-fold increase in sales over a decade.
 Nissan plans to introduce three new models in
China this year.
 Can China become the largest auto producer in
the world? Some lessons can be learned from
the steel production in previous years.
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The Case of Crude Steel Production
Million Tones
Year
Global Output
China Output
China/Global (%)
1998
777.33
115.59
14.87
1999
784.55
124.26
15.84
2000
847.67
128.50
15.16
2001
850.27
151.63
17.83
2002
903.93
182.37
20.17
2003
969.74
222.34
22.93
2004
1068.69
282.91
26.47
2005
1146.20
353.24
30.82
2006
1250.00
419.15
33.53
2007
1344.27
489.29
36.40
2008
1329.72
500.49
37.64
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 China’s crude steel production increased from
116 million tones in 1998 to 500 million tones
in 2008.
 China accounted for 37.64 percent of global
output in 2008, up from 14.87 percent in 1998.
 The estimation of strong demand for autos can
be drawn from the growth of per capita
production rate over the past decade.
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Per capita Car Production Rate
1.4
1.2
1
0.8
0.6
0.4
0.2
0
2000
2001
2002 2003
2004
2005
2006 2007
2008 2020
Car Production Ratio to Population
41
 China’s car production rate to population
increased from 0.05% in 2000 to 0.38% in
2008.
 The per capita production (or sales) rate has
been stable, around 3.4-4.3% for the USA in
the past three decades, namely, 13 million
vehicle sales annually.
 What is this rate for Japan and Germany?
 Will China reach a similar rate with Japan’s?
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6. Conclusions
 China will become the largest auto producer at 12 million
vehicles in 2010.
 Induced by the market demand, both multinationals and
Chinese auto producers will expand their production
capacities.
 In 2020, the vehicle production will be at 25 million units
in China, under the support from high economic growth
and income-increase trends.
 China’s diversified auto production system will be
integrated into the global production chain, and regional
production mechanism will be consolidated into national
unified system, covering all multinationals and
homegrown makers.
 ……
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Thank You!
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