Chinese Auto Market

There is a booming demand for automobiles in China and it is not being satisfied even though domestic production and foreign imports are skyrocketing. And, Detroit auto makers take notice when vehicle sales soar with fat profit margins.

Since the end of 2001, when China joined the World Trade Organization, import tariffs on automobiles have dropped from the 70 to 80 percent range to around 40 percent prompting auto makers to ship as many cars as is allowed by the quota system. At the same time, the quota system quantities have increased to more than 180,000 units this year from 120,000 units last year. According to Vice-Minister of Commerce Wei Jianguo, the protections to the domestic car industry provided by the quota system will cease by the end of 2004 to satisfy the requirements for entry into the WTO. Additionally, the tariff rate on imported automobiles will decrease to 25 percent by 7/1/06.

There has been an explosion of growth in imported vehicles despite the fact that the government has instituted policies to drive foreign auto makers to speed up investment and production in China. Driven by the policies, new joint foreign and Chinese ventures and strategic alliances have been formed. Auto makers from all over the world have business deals with Chinese companies to manufacture new models. Some examples are:

The new models produced in China over the past two years included Toyota's Vios and Land Cruiser, BMW 3 and 5 series, Volkswagen's Polo and Golf, Audi A4, Nissan Sunny, Ford Mondeo, General Motors' Excelle, Citroen's Xsara, Honda's Accord and Fit and Hyundai's Sonata.

It's generally understood by foreign auto makers that they can have a foothold in the Chinese market through production of vehicles rather than importation.

Along with the sale and use of automobiles comes the demand for service and replacement parts and companies are lining up for their chance at the Chinese market. Detroit-based Delphi, the world's leading parts supplier, saw sales surge 50 percent in 2003 to $650 million. Although it relies primarily on the local market, Delphi China is already exporting automotive components to Europe and the United States.

Other auto component production companies are aggressively working to cash in on the booming Chinese market. The German firm Bosch entered into a joint venture with Weifu High Technology Company to produce fuel injector systems, and US-based Visteon moved its Asia-Pacific headquarters from Japan to Shanghai where it is negotiating with Dongfeng Motor Corp. to produce components.

At present, Bosch, Delphi, and Visteon are barely noticeable in the market which boasts more than 4,000 Chinese component manufacturers. Although numerous, the Chinese component producers are ill-prepared to support the exploding automobile production.

Trying to fully explain the extent and meaning of the growth in the Chinese auto industry is ambitious for a blog post, so consider this only a short and incomplete introduction. There are too many things happening in too many places too quickly to adequately cover the subject. Suffice it to state that anyone involved in any business related to the automotive industry should keep a close eye on events in China.