Chinese Autos Aim for 2020

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Anyone who has been stuck in traffic in one of China’s fast-growing, but slow-moving, cities will already know that cars are popular and plentiful. Now the China Communist party’s Policy Research Office (as reported in Boston Globe) expects China to overtake the US as the world’s largest car market by 2020, with output of 15 million units (60 percent of them passenger cars) and an annual growth rate of 10 percent. Production in 2005 was up 12.56 percent to 5.71 million units, according to the China Association of Automobile Manufacturers, while media reports suggest output of over 7 million units in 2006 and 8 million in 2007.

Chinese companies such as Geely, Chery and Nanjing Automotive are leading developments, and already have plans for exports to developing as well as developed markets. The Ministry of Commerce suggests that exports of cars and parts will rise to US$120 billion in the next 10 years, while the Malaysia Star reports that China’s auto exports doubled in 2006 to a new record of 340,000 units.

While nobody is predicting an overnight success in exports, the long-term may tell a different story:

    “Billionaire financier Wilbur Ross, who is also investing in the auto parts sector, says the U S auto business should be careful not to underestimate the Chinese auto companies. He said he was ‘appalled that many people in the industry ridiculed’ a Geely car that was on display at the annual auto show in Detroit in January…’They missed the point — the point isn’t will that first model of car have an impact…The question is how serious are the manufacturers in those countries about penetrating our markets. My take is that they are deadly serious’.”

Rapid growth often brings overcapacity, and the Chinese auto sector has had its fair share. Forbes reports that the National Development and Reform Commission (NDRC) has now issued ‘structural adjustment’ guidelines to control supply:

    “The country’s top economic planner said in a circular dated Dec 20 that China’s total automaking capacity will increase to 10 mln units next year from eight mln in 2005, with utilization only at 71.5 pct in 2005 for the overall industry and 72.5 pct for the passenger vehicle sector.”

While they seek to control capacity, the NDRC also stressed that domestic technology and the auto parts sector should keep up with the rest of the sector, reflecting the wider policy of promoting quality over quantity in economic development. They are also trying to push domestic, over foreign, brands. At the same time the Ministry of Commerce is said to be planning export quotas from 1 March 2007 to try and control industry development, and avoid damaging competition.

While the domestic industry, and local companies, continue to expand, international players are also active. Mercury News reports that:

    • “General Motors, the country’s No. 1 automaker, said it sold 876,747 vehicles in China last year, up 32 percent from 2005” and is investing US$3 billion (2004-2007) in the market as it shifts production from the US.

    • “Ford said sales of its brands…rose 87 percent to 166,722 units” and is investing US$1 billion in expanding its operations.

    • “BMW AG’s Rolls Royce said China became its third-largest market in 2006 after the United States and Britain, with sales up 60 percent”.

    • “Toyota Motor Corp…had just 3.5 percent of the market [in 2005]. But it has set a target of 1 million sales a year by 2010”.

It seems clear that Chinese auto production will continue to expand at a pace, and that the local parts sector will follow suit. What is not clear is how far technology and quality will improve, and whether foreign consumers will be willing to take the plunge. The big boys in Detroit may want to take some Chinese lessons, just in case they need to relocate.

See news sources:

    China aims to be top auto manufacturer by 2020Boston Globe – United States
    SHANGHAI — China is expected to surpass the United States as the world’s top automotive market by 2020, with output reaching 15 million units, a Chinese …

    China announces measures to curb auto sector capacity
    Forbes – NY,USA
    The country’s top economic planner said in a circular dated Dec 20 that China’s total automaking capacity will increase to 10 mln units next year from eight …

    Report: China’s auto exports double in 2006
    Malaysia Star – Malaysia
    BEIJING (AP) – China’s auto exports doubled in 2006 from the previous year to hit a record 340,000 units, state media reported Monday. …

    DaimlerChrysler to JV in China
    CNN International – USA
    SHANGHAI, China (Reuters) — Car maker DaimlerChrysler AG has received government approval to set up a joint venture to manufacture vans in China, …

    GM, Ford say their China sales rose sharply in 2006
    San Jose Mercury News – San Jose,CA,USA
    BEIJING – General Motors Corp. and Ford Motor Co. said Monday their sales in China’s booming car market jumped last year, a boost for automakers that have …

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