(Last updated: 21 Mar 2011)

Trends and opportunities

The market

The automotive industry is one of China’s designated ‘pillar’ industries. In 2010, a total of 13.8 million passenger cars were sold in China, according to the statistics from the China Association of Automobile Manufacturers (CAAM). Overall vehicles, including trucks and buses, came to 18.1 million units during the period, up 32.4 per cent. Passenger vehicle sales in China jumped 33 per cent in 2010 as government incentives helped the nation stay the world's largest auto market for the second straight year. Over the past decade, China's annual vehicle sales jumped 10-fold as rising affluence and government incentives boosted demand.

The manufacturing of passenger cars is one of the national priorities, particularly in Shanghai, Changchun, Wuhan and Guangzhou where dominant international players such as Volkswagen, General Motors, Citroen and Honda have established production facilities. In addition to those major players, many local automotive manufacturers such as Chery Auto, Geely Auto, Zotye Auto, etc are growing quickly.

China’s automotive component industry is quite segmented with approximately 2,000 large and medium-sized automotive component manufacturers. There are also over 1,000 small manufacturers across China operating under separate industry administrations but supplying to the automotive industry. The industry is focused on safety systems, new material utilisation and environmentally friendly technologies such as alternative fuel systems for motor vehicles.

In 2011, the 12th Five-Year Guideline for China begins and one of the measures towards reducing the national emissions reduction and one of the seven strategic industries that the government is looking to cultivate, new energy automotive will continue to enjoy funding and support from the highest levels of government. The Ministry of Finance will invest over a trillion yuan for the further research on energy-efficient and new energy automobile core technology. New energy vehicles are going to play the leading role for the next five year period, with their 2015 sales forecasts reaching one million vehicles. The guideline also expects that accumulated domestic sales of new energy vehicles will reach five million units by 2020, with hybrid passenger cars constituting 50 per cent of total passenger car production.

China’s automotive industry is gearing for a new round of restructuring. In September 2010, the State Council issued guidelines to promote mergers and acquisitions (M&A) in six pillar industries; automotive, steel, cement, machinery, electrolytic aluminium and rear earth. The new guidelines call on the local authorities to put aside protectionism and eliminate obstacles to M&A. Currently there are more than 130 vehicle producers in China, scattered over 27 provinces and regions in China. Around 14 are responsible for 90 per cent of the country’s automotive production and sales. To improve economies of scale, the Chinese government wants to reduce the number of producers to 10 during 2011 with annual output capacity of over one million each.

Opportunities

As China’s automotive industry undergoes restructuring and implements new technologies, there are substantial opportunities for Australian companies in component manufacturing.

Development priorities for new technology are:

• Auto safety systems including ABS and air bags
• Auto transmissions
• High performance friction material for brake systems
• Tooling technology
• Vehicle body design
• Low capacity and high performance petrol engine
• Diesel engine between seven and 12-litre capacity and key parts
• New material for automotive parts development including magnesium casting parts
• Development of hybrid vehicles particularly in passenger cars
• Development of vehicles using an alternative fuel or new source of energy such as rechargeable capacitance electricity vehicles particularly in public bus transportation systems
• Battery, motor, e-control system

Tariffs, regulations and customs

Tariffs on automobiles and components are being continually reduced following World Trade Organization accession. An average rate of 25 per cent for cars and 10 per cent for components now applies.

Duties are imposed on the majority of imports to China and a 17 per cent Value Added Tax is applied to all imports, except those specifically used for manufacturing for re-export. Potential exporters are therefore advised to make direct contact with Austrade in order to obtain the most up-to-date information on the relevant sector tariffs and regulations.

Customs laws relevant to the automotive industry include:

• Automobiles with engines larger than three-litres, less than four capacities (including four litres) have dropped from 53.7 per cent to 25 per cent.
• Automobiles with engines under three-litre capacities, the tariff has dropped from 70 per cent to 25 per cent.
• Automobile tariffs have been reduced to 25 per cent since July 2006.
• Vehicle parts and components have been reduced to 10 per cent since 2006.

Since April 2006, China has implemented regulations known as 'whole vehicle character'. This new regulation imposes a tax on imported automotive components equal to the tariff on a complete automobile – typically 25 per cent – if the final assembled vehicle fails to meet certain local content requirements. Previously, tariffs on automotive components ranged from 6-10 per cent.

Foreign car manufacturers in China such as Volkswagen and General Motors are likely to prefer purchasing components worldwide, based on price and quality rather than purchasing from the local market due to quality issues. China has also begun expanding available access under import quotas by 15 per cent annually, from an initial level of US$6 billion until the complete elimination of quotas within six years after accession.

Industry standards

In general, international standards are applied in China’s automotive industry. International automobile manufacturers, such as General Motors and Volkswagen, dominate the standards, models and platforms used.

Marketing your products and services

Market entry

Several market entry strategies exist for Australian firms to enter the China automotive industry:

• Joint ventures or wholly owned foreign investment can be sensible options, as the industry – including international car makers – prefer to source from domestically located suppliers (often first tier suppliers) to ensure just-in-time delivery. (Follow your customer).
• Develop links to car manufacturers to identify specific product needs.
• Access second tier or third tier suppliers as this sector has less central government interference and is driven by free competition based on pricing and quality. Establishing trade relationships with suppliers who sell to OEM component manufacturers is a recommended approach. Often this trading relationship is converted into an investment partnership in order to secure market share.

There are a number of key strategies that should be considered when marketing automotive components in China:

• As automotive technologies and products are industry focused and specialised, targeted market visits to potential customers and strategic partners is an effective approach to initial market development.
• International auto exhibitions are suitable and effective for generic applications and auto-related products and services, including car care products and testing equipment.
• Promotional activities such as seminars and product launches are useful for new technology and material applications.
• Liaise with major multinational car makers and component manufacturers with investments in China to establish their specifications and import requirements. Multinationals often resort to imports if the local suppliers cannot meet their quality and pricing requirements.

The automotive industry globally has been an early adopter of e-commerce and online markets, however, auto-related e-business in China is relatively undeveloped. China’s undeveloped online payment system and difficulties establishing the business credentials of some companies in China means physical transactions are still most common.

Distribution channels

The major distribution channels for the automotive industry are:

• First tier suppliers to automobile assemblers
• Second and third tier suppliers to first tier suppliers (often components manufacturers)
• Second and third tier suppliers to auto parts wholesalers for aftersales market

Links and industry contacts

Government, business and trade resources for China

China Association of Automobile Manufacturers – www.caam.org.cn/english

China Automotive Zhenxing Components Corporation Ltd.
Beijing Xi Cheng Qu, Liang Hua Shi
Jia 3 hao, Zhongqicai, Office Building
Beijing 100038, PR China
Tel: +86 10 6340 9183
Fax: +86 10 6340 9183

China Society of Automotive Engineering
A-508, Hao Yuan, Pengrun Garden
Caihuying, Fengtai District
Beijing PR China 100054
Tel: +86 10 6347 6226
Fax: +86 10 6347 6444

Media

China Automotive Review – www.cbuauto.com
China Daily – www.chinadaily.com.cn

Contact details

The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency.

Through Austrade’s network of offices in over 50 countries, we assist Australian companies to succeed in international business, attract productive foreign direct investment into Australia and promote Australia's education sector internationally.

For more information on how Austrade can assist you, contact us on:

Australia ph: 13 28 78 | Email: info@austrade.gov.au

A list of Austrade offices (in alphabetical order of country) is also available.