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New Auto Landscape After WTO Entry
China's entry to the World Trade Organization a year ago has greatly shaken up the country's automotive landscape.

Over the past year, the domestic passenger car market has seen a period of explosive growth and global players are rushing into China's fast-growing car industry.

Production Soars

The latest statistics from the China Association of Automotive Manufacturers, the industry regulator, show that the domestic automotive industry churned out 2.63 million vehicles in the first 10 months of this year, up 34.85 percent year on year.

Officials from the association predicated that China's vehicle production, ranked eighth in the world last year, is expected to be ranked fifth or sixth this year, with an output of more than 3.15 million vehicles. China produced 2.33 million vehicles last year.

The rapid production growth came as a result of an explosive demand in the domestic car market.

After mergers and acquisitions in recent years, the domestic car industry is dominated by three groups - First Automotive Works (FAW) Group, Dongfeng Motor and Shanghai Automotive Industry - and six car makers including Guangzhou-based Honda, Chongqing-based Chang'an Auto and Shenyang-based Brilliance China.

Official figures show that these companies account for nearly 90 percent of domestic car output.

Strong Sales

Sales of domestically made vehicles from January to October jumped 35.55 percent to 2.66 million units, exceeding total sales for all of last year, which stood at 2.37 million units, statistics released by the China Association of Automotive Manufacturers show.

Falling prices, a rush of new models and a rise in consumer incomes had spurred robust car demand, the association said.

Sales of passenger cars leapt 48.63 percent during the first nine months to 849,347 units, compared with 720,000 units for the whole of last year.

Some 910,557 heavy trucks were sold during that period, up 34.7 percent year on year.

Passenger car sales in China are expected to hit one million this year, making the country a strategic focus for many global automakers. Mei Wei Cheng, chairman and chief executive of Ford Motor (China) expects Chinese to buy five million cars annually by 2010.

In a depressed and highly competitive global car market, this is definitely welcome news for the world's leading car makers which are muscling their way into one of the world's fastest growing markets through ties-up with China's large State-owned car makers.

Adding to the excitement among domestic and international carmakers is the market potential. Analysts expect the sales of passenger cars, which account for only a quarter of total vehicle sales in China, to reach two million units by the end of this decade.

Price Factor

Price is a big factor in the Chinese market, where car ownership had been off limits to all but a select few until the past five years thanks to high tariffs.

Low-priced cars are the main engine of growth, with models priced at less than 80,000 yuan (some US$10,000) surging 123 percent month on month in September and 78 percent for the first three quarters compared with a year earlier.

"Chinese customers are not mature and make decisions based mainly on price and recommendations from friends," said analyst Yale Zhang of Automotive Resources Asia, a consultancy.

As sales of local makes have been surging this year, expections of imported cars making inroads into the local market due to significant reductions on import tariffs do not appear to have materialized.

Imported Cars

"One of the main reasons for the upbeat sales of domestically-made vehicles are that imports have not surged as many expected earlier," said Jia Xinguang, chief analyst with the China National Automotive Industry Consulting and Development Corp.

China imported about 80,900 vehicles in the first eight months of this year, up from 72,000 units last year.

Vehicle imports were widely forecast to at least double this year compared with last year. But the government has not released as many import licenses as many analysts had expected.

Xinhua reported Friday that the northeastern port city of Dalian has become clogged with a record number of imported cars.

More than 5,500 imported cars are waiting at the docks of the city's bonded zone because of a shortage of import licences and the high exchange rate which makes them too expensive in China's extremely competitive market these days.

Private Cars

As tariffs on imported cars have dropped from a range of 70 percent to 80 percent to 50 percent to 60 percent and domestic and joint-venture car makers have undercut each other to lure the country's increasingly affluent middle class, the number of private car owners in some major cities has swelled.

Xinhua reported last month that private cars in China reached 7.71 million units by the end of last year.

Private purchases now account for more than 50 percent of car sales in China and in some cities more than 70 percent as motor vehicles become a commonplace consumable.

Official figures released by Shenzhen Municipal Statistics Bureau last month indicated that the number of private car owners in the city jumped almost 700 percent in the fist nine months of this year.

Some 20 percent of households in the city now own a car, compared with 3 percent at the end of last year.

However, Shenzhen still lags behind some other cities in the Pearl River Delta, one of the richest regions in China, in private ownership.

Official figures show that 21 percent of households in nearby Dongguan owned cars at the end of September, the leading car ownership community in the Pearl River Delta.

More than 100 new private cars were registered daily last month in Dongguan, which had 1.54 million permanent residents and 460,000 driving license holders.

Car sales in the Pearl River Delta account for 30 percent of the country's total car market and a recent study predicts that private cars will continue to grow and one in two or three households in major cities in the region such as Shenzhen, Dongguan and Shunde will own a car.

Joint Ventures

Foreign car makers have been pouring money into China's car sector since the first half of the 1980s when Volkswagen, Chrysler and Peugeot set up manufacturing joint ventures in China. Since then, the rest of the world's heavyweights have paraded into the market, with General Motors making the largest single investment of US$750 million for its share of a 50-50 joint venture in Shanghai.

Global carmakers have been increasing their forays into China's auto market following China's entry to the WTO, hoping to cash in on low production costs and rising urban incomes.

Major foreign car makers have pumped well over US$5 billion into joint ventures and are eagerly transferring technology, design know-how and marketing skills to their Chinese partners.

For foreign car executives, China has always been a strategic investment. It is the market potential, not the market reality, that is used to justify the big bets.

In all, more than 10 foreign carmakers have entered joint ventures and are now competing for market share. They have also announced plans to expand production facilities to tap the growing domestic market.

These include the announcement of General Motors, the world's largest auto maker, last week that it launched its third joint venture in China by producing a new minivan.

Peugeot of France recently announced plans to build its Peugeot marque in China alongside its Dongfeng Citroen models.

Honda Motor, Japan's second largest car maker, announced Friday that it had received approval from the State Council, China's cabinet, for a 65 percent stake in a new venture in Guangzhou.

The approval of the venture marks the first time a foreign company has been given control over an auto manufacturing venture in China.

(Shenzhen Daily November 25, 2002)

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