China - Automobile Industry
China is the world’s largest automotive market and has transformed significantly since China’s WTO acceptance on 11 December 2001. It was projected that China’s car market will represent an estimated 35% of the total growth in the world’s car market from 2011 to 2020. The auto industry was a huge force in driving economic growth in China.
Just to put this in dog years, the US auto industry set a sales record in 2015. The final 2015 tally came in at 17,470,659, breaking 2000’s record 17,402,486 sales -- 5.7 percent higher than 2014. Really cheap gas, as well as incentives, helped goose the numbers to their record-breaking pace. After years of a slow economy and low car sales, there are more vehicles 10 years and older on American roads than ever before. Overall, 2015’s final sales numbers marked the longest streak of annual gains since the 1920s and capped a spectacular comeback for the industry. Gas prices, interest rates, and the age of vehicles on the road came together for a perfect storm.
The problem with cars in China is the same as in many sectors in China's economy - too much capacity, too little demand. The result was continued price-discounting in the industry, especially by those with the highest over-capacity levels. Booming auto sales were leading to blind investment in the industry, which by 2010 was estimated to result in annual production capacity of over 31 million units by 2015. By 2012 average OEM production capacity utilization in China had dropped to 67.3% from 85% in 2010.
Japan Economic News reported on 06 May 2015, that in the world's biggest auto market, China's overcapacity problem had become more and more serious. Automakers 2015 year production capacity was expected to increase over the previous year by 20%, reaching a production capacity of 50 million units. But 2015 it was estimated there would be 25 million new car sales, an annual increase of only 7%. Car companies in China operating rate was considered 80%, but could fall off to 50%.
The car companies around 2012 expected the market would continue to expand rapidly and decided to make a massive investment. From the decision to invest and build factories to take about 3 years time. This investment judgment led to the overcapacity in 2015.
In 2015, the production and sales of automobiles witnessed a stable growth and reached 24,503,300 and 24,597,600 units respectively, up 3.3% and 4.7% year on year. The volumes set new records. However, their growth rates decreased 4 percentage points and 2.2 percentage points comparing with last year. The whole-year trend was characterized by “low middle, high ends”. For the first eight months, the accumulative growth declined monthly by monthly.
China became the world’s largest automobile market in 2009 with a total production of 13.79 million units, a 48.3 percent increase when compared to 9.3 million units in 2008 (OICA, 2009; 2010). One year later, total production reached 18.26 million units in 2010, a 32.4 percent increase when compared to 2009, with total sales peaking at 18.06 million units.
In 2013, Chinese auto sales reached 21.98 million units, an increase of 13.9% from 2012. Total sales of passenger cars (i.e. excluding buses and heavy trucks) grew 15.7% to 17.93 million units sold in 2013. Total sales of commercial vehicles reached 3.8 million units, down 5.49% from 2012. Although sales of commercial vehicles experienced a slight downturn, China has maintained its place as the world’s leader in both production and sales for the fourth consecutive year. Auto production and sales in the first quarter of 2014 were 5,891,700 and 5,922,300 respectively, with year-on-year growth of 9.2%.
Following the establishment of the People’s Republic of China (PRC) on 1 October 1949, the central government tried to make automobile industry a national industry by granting a high degree of protection. China’s modern automobile industry started when its first automobile firm – First Automotive Works (FAW), was officially opened with the assistance from Union of Soviet Socialist Republics in 1956 in northeast city of Changchun.
In the years of ‘Great Leap Forward’ (1958 – 1960), with the Sino-Soviet split, the industry shifted back to self-reliance with campaigns being mounted against the dominance of foreign technologies and equipment mainly due to the change in the political environment (Xinhua Net, 2003). As a result, the whole nation produced just 98 passenger cars in 1960 and only 5 passenger cars in 1961.
From 1949 to the late 1970s, although domestic automobile firms made some progress, there was still a large gap between Chinese and foreign automobile firms regarding technology, service, and scale.
China’s top ten car manufacturers in 2013 were: Shanghai GM, FAW-Volkswagen, Shanghai Volkswagen, Beijing Hyundai, Nissan-DFM, Changan Ford, Geely, Dongfeng Peugeot Citroen, Chery and FAW Toyota. In 2013 these ten companies accounted for 65.91% of total auto sales in China.
China had about 6,000 automotive enterprises, which encompass five major sectors: motor vehicle manufacturing, vehicle refitting, motorcycle production, auto engine production, and auto parts manufacturing. All tiers of the industry were driven by the booming sales of the OEM (Original Equipment Manufacturer) sector. Nearly 80% of the revenue for the auto parts and accessories market was through new vehicle sales. However, revenue from aftermarket sales was rapidly increasing.
Shanghai and its surrounding provinces (Zhejiang, Jiangsu, and Anhui) are the centers for component manufacturing, representing around 44% of national production. Shanghai is home to Shanghai General Motors, Delphi, Visteon, and other notable American automotive companies. In addition to Shanghai, other major automotive centers in China include: Beijing (Capital), Guangzhou (South China), Chongqing (West China), and Changchun (North China).
The China Association of Automobile Manufacturers (CAAM) expected the Chinese domestic auto market demand will reach 23.8 million units for 2014, among which, 22.35 million units were expected to come from domestic car sales (the remaining 1.45 million units are expected to come from sales of imported cars). From 2002 to 2011 tier 3 and 4 cities contributed to 40% of total new car sales and are expected to rise to 60% by 2020.
From 2009 to 2013, the China auto industry experienced two stages of development: the first stage was explosive growth from 2009 to 2010, after an auto stimulus policy initiated by the Chinese government; the second stage was a reconstruction, concentration and stabilizing stage from 2011 to 2013. This second stage was difficult for auto makers and prompted the pursuit of new technologies, in an attempt to lead the industry. It is expected that the Chinese auto market will become more mature with healthier competition in the next five years, under the “indigenous innovation” policy initiated by the government. The policy will also push automakers and consumers to consider more energy-efficient automobiles.
The Chinese government 12th Five-Year-Plan (2011-2015) includes specific directives to steer the nation toward energy-efficient vehicles, specifically New Energy Vehicles (NEVs), as a way to combat petroleum imports and oil dependency, as well as to build new industrial capacity. For example, during the 12th FYP, the central government initiated the “Ten Cities, 1,000 Vehicle Program” to stimulate electric vehicle development in ten cities. The pilot program was eventually expanded and now includes 28 cities.
To promote electric vehicles among consumers, the central and provincial governments introduced purchase subsidies for 100%-electric and plug-in hybrid vehicles. Until 2015, the Chinese government would support the development of energy-efficient and New Energy Vehicles (and its key auto parts manufacturing, such as the motors, controllers and batteries). These policies will play an important role in driving changes in the Chinese auto market and will create opportunities for U.S. companies with expertise in these areas.
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