Transcript Outlook on Auto Industry In China Presented by Team 2: Huanhuan He

Outlook on Auto Industry In
China
Presented by Team 2:
Huanhuan He
Siyan Zhang
Seung-sil Lim
Overlook of Auto Industry in
China
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Despite the current marked decline in the
automotive industry worldwide, sales in China
are climbing at an unprecedented rate.
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The number of vehicles sold in the first quarter of
this year doubled, year on year, to reach more
than 400,000, leading some analysts to predict
that China will be the world’s third-largest car
market by the end of the decade, after the US and
Japan.
Announcements of new manufacturing investment
in the country seem to take place almost weekly.
Overlook of Auto Industry in
China: Some Numbers
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Annual car sales in China broke the one
million mark for the first time last year, surging
56 percent to 1.126 million.
Automotive imports almost doubled in the first
eight months of the year from the same
period of 2002 to reach a record $9.3 billion
as the industry sped ahead to meet demand
Car output over the first eight months rose
89.7 percent year-on-year to 1.25 million cars
-- surpassing the 1.06 million in all of 2002
Why this would happen?
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China has pledged to slash tariffs on auto imports to
25 percent by July 2006 from between 40 and 50
percent now and abolish all quotas by January 2005,
in line with commitments made upon joining the
World Trade Organization in late 2001.
China has given boost to the development of Auto
industry as one of the two pillar industries---the other
being housing---in a bid to stimulate people’s
consumption, spur the market and enlarge domestic
demands.
Why this would happen?
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Chinese government is planning to
remove some of the regulatory and
financial hurdles to encourage
private car ownership.
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During the period of Ninth-Five-Year plan the auto sales volume in China
has increased by 6.33% annually, from 1.46 million units in 1995 to 1.83
million units in 1999. The volume of private cars has grown by 28.4%
annually, from 2.50 million in 1995 to 5.34 million in 1999.
Why this would happen?
Wages per
hour, US$
1999
2000
2001
China
0.5
0.5
0.6
US
19.1
19.7
20.3
Sources: US Department of Labour; National
Bureau of Statistics, China Statistical
Yearbook; Economist Intelligence Unit.
The world's largest producer
of automobiles?
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"The question facing us is how to compete with a country whose
labor costs are currently one-twentieth or one-thirtieth those of
Japan," he says, adding that China will become a force to be
reckoned with in less than five years. "If we look at home
appliances and consumer electronics - including refrigerators,
cameras and televisions - China is already the world's largest
producer. And its trade surplus with the U.S. now exceeds that
of Japan. It is just a matter of time before China becomes the
world's largest producer of automobiles."
--Kosuke Shiramizu of Toyota.
“Be careful with China”
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China’s emergence as a trade power is finally starting to annoy
other countries.
China’s export success of recent years has been an important
factor behind its high GDP growth rate. Its emergence as a trade
power, however, has caused controversy overseas.
--Business China
“U.S. factories have shed jobs each month since September
2000, according to the Institute for Supply Management‘s
surveys. "according to an article on wardsauto.com
National or Multinational?
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In one hand, China has become a
larger and larger producer of
automobiles, in the other hand,
local carmakers are not satisfied of
just being “producers”—although it
seems they have to be. Germany’s
Volkswagen, South Korea’s
Hyundai Motor, Italy’s Fiat, United
States’ General motor, behind every
large Chinese national automanufacturer, there is always a
famous international collaborator—
all were attracted by China’s cheap
labor force and large market,
however, Chinese national
enterprises may also want to
“create their own brand”.
Above is a picture from an
advertisement of Shanghai-General
Motor
Repeat construction
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"Only aiming at the speed of development and carrying out
economic developing strategy simply by administrative means
are still popular in some regions… industry park and introducing
foreign investment (or fund from other provinces) are always
completed by decided quote task, in addition, such task is
committed to government staff in different department, the
repeat construction at the low level began to increase in some
region, and the small backward industries"
The above phenomenon is especially true in the auto industry in
China. Attracted by the high profit of this industry, supported by
provincial governments, eager to set up a new brand, low level
repeat constructions exist widely within the auto industry in
China now.
Overcapacity
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"Overcapacity will be a major factor within
two years, with the passenger car market already the single most important sector
within the Chinese vehicle market - likely to
be at the forefront"
--Paul Brough, managing partner of
KPMG's Financial Advisory Services practice
A Direct Outcome
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Overcapacity and repeat construction
together lead to a more intensive competition
in automotive market.
In order to stimulate consumption, there are
several choices for the manufacturers: to
improve automobile’s quality; to enhance
technology, and to decrease the price.
Unfortunately, most auto manufacturers
choose the last method—in the first half of the
year, average car prices in China fell seven
percent.
Incessant decline of price
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The incessant decline of price has drawn a lot of
attention.
“In the round of price decline, although some factors may
bring some benefits such as the furious competition after
breaking the monopoly, the productivity enhancement
from technological advance and so on. The continuous
decline of price will result in the reduction of expected
return rate and affect the investment activities of
enterprises, thus having a sequential influence on the
expectation of employment and employees’ income and
and possibly bringing about the slow growth of
economy."
--China Daily
Incessant decline of price
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In addition to the above sequence, a more direct
output of the price decline is, when it becomes a
common phenomenon, it’s function as a
stimulating demand method is weakened.
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Will any consumers want to buy an automobile when
they expect or even know that the price will decline in
the near future?
And, even if this kind of solution of stimulating
demand can be of any use, it yet creates some
problems above the auto industry itself.
Environmental and
transportation problem
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As Greider mentioned in his "One World, Ready or not", this
kind of solution engenders a dangerous collision between mass
consumption and the natural environment.
Environmental problem:
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The pollution to the environment related tightly with auto industry.
Transportation problem:
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In such large cities as Beijing and Shanghai in China, when the
quantity of private car has raised rapidly, the transportation
problem has drawn more and more concern.
Traffic in Beijing
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One scene in Beijing:
Some private car
owner complained
that although they
now own private car,
it’s not as
convenient as they
hoped—because of
the frequent trafficjam.
Debate over the development of
Auto Industry
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There are, however,
some debates raised
by some more
optimistic critics.
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"Traffic-jam" is a
symbol of prosperity?
“Price-war” is
beneficial to the
consumers?
Once Beijing was called kingdom of bicycles,
and now, it seems bicycles are replaced more
and more by cars—which also led to a worse
traffic and environment.
Conclusion
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In spite of all these different opinions, on August,
Chinese authorities are drafting a new policy toward the
restructuring and development of the country's booming
automotive industry. Although some critiques believe
that China need a more mature “consumption policy”
rather than merely “industry policy”, most believe that
this government intervention can better solve the
existing problems.
This seems to echo Greider’s point of view—market can
not solve the problems by itself, and nations must
eventually turn to political solutions.
Reference
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http://www.wardsauto.com/
http://www.autonews.com/
Xinhua Net
People’s Daily
Economist Intelligent Union
Proquest Direct