Automotive to China
(Last updated: 12 Aug 2013)
Trends and opportunities
The automotive industry is one of China’s designated ‘pillar’ industries. In 2012, a total of 19.3 million vehicles were sold in China, of which 15.49 million were passenger vehicles and 3.81 million commercial vehicles (Source: China Association of Automobile Manufacturers (CAAM)). Total vehicle sales increased 4.33 per cent over 2011, up 7.07 per cent for passenger vehicle sales and down 5.49 per cent for commercial vehicles.
China became the world’s largest automotive market in 2009 and has maintained the leading position for four consecutive years. Over the past decade, China's annual vehicle sales jumped 10-fold as rising affluence and government incentives boosted demand. With the introduction of government incentive programs in 2009, total automotive sales experienced strong growth rates of 46 per cent by the end of 2009 and continued to grow by 32.4 per cent in 2010.
The manufacturing of passenger cars is one of the national priorities, particularly in Shanghai, Changchun, Wuhan, Chongqing and Guangzhou where dominant international players such as Volkswagen, General Motors, Ford, Citroen and Honda have established production facilities. Currently the top 5 OEMs with annual sales over 1.5 million are:
- Shanghai Automotive Industry Corp.
- Dongfeng Motors Co.
- First Automotive Works
- Chang’an Group
- Beijing Automotive Industry Holding Co.
In addition to those major players, many local automotive manufacturers such as Chery Auto, Great Wall Motors, Geely Auto and BYD Auto are growing quickly.
China’s automotive components 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.
In 2011, the 12th Five-Year Plan (2011-2015) was launched. The automotive industry is one of the seven strategic industries that the government is looking to develop. New energy vehicles are a focus of the automotive industry strategy and one of the measures towards reducing national emission levels. New energy vehicles will continue to enjoy funding and support from the highest levels of government. The Ministry of Finance will invest over a trillion yuan for further research on energy-efficient and new energy automobile core technology. New energy vehicles are predicted to play a leading role in China’s automotive industry for the next 10 years, with sales forecasts of electric vehicles reaching one million by 2015. The Guideline also predicts that accumulated domestic sales of new energy vehicles will reach five million units by 2020.
In April 2012, the Energy-saving and New Energy Vehicle Development Plan (2012-2020) was released. It made clear that development of electric vehicles is the strategic goal of the Chinese automotive industry in the next 10 years. The current priorities are to move forward the commercialisation of battery electric vehicles (BEV) and plug-in hybrid electric vehicles (PHEV), and to promote hybrid vehicles and energy-saving ICE vehicles to a wider extent. The Plan targets production and sales of 500,000 units of BEV and PHEV by 2015 and five million units by 2020. The Plan also sets goals for improved fuel efficiency, for example, a target average fuel consumption of 6.9 litres per 100km for all passenger vehicles by 2015 and 5.0 litres by 2020. In the meantime, the overall technology of new energy vehicles, power batteries and key automotive components and parts should be at international standards.
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 rare earths. 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. The top 10 OEMs are responsible for 87 per cent (in total over 16 million units) of the country’s automotive production and sales in 2011. To improve economies of scale, the Chinese government planned to reduce the number of producers to 10 during 2011 with annual output capacity of over one million each. Yet industry consolidation has moved at a slow pace with only two major M&A deals in the past two years: Chang’an Group took over Changhe and Hafei; GAIC took over Hunan Changfeng and Gonow.
China is moving away from encouraging foreign direct investment (FDI) in complete vehicle manufacturing towards research and development (R&D) of new energy vehicles. The National Development and Reform Commission and Ministry of Commerce released the Catalogue of Industries for Guiding Foreign Investment (2011 revision) in January 2012. It removes ‘complete vehicle manufacturing’ from the ‘encouraged’ to ‘permitted’ category, considering the overcapacity and abundant FDI in this area.
Instead, the government encourages investment in R&D and new energy vehicles. Below are the detailed development priorities from the Transport and Transportation Equipment Manufacturing of Item 19:
- Manufacturing and R&D of engines
- Manufacturing key automotive components and parts and R&D of key technologies
- Manufacturing and R&D of automotive electrics and electronics
- Manufacturing of key automotive components and parts for new energy vehicles
The development of new energy vehicles suggests opportunities in improving fuel efficiency, power battery research and development to make vehicles safer, more reliable and lighter. The construction and technology of charging facilities is also needed to foster the development of EV infrastructure.
Opportunities also exist in the following areas:
- 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 engines
- Diesel engines 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 systems
Tariffs, regulations and customs
Tariffs on automobiles and components are being continually reduced following World Trade Organization (WTO) 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.
Since April 2006, China has implemented regulations known as 'whole vehicle character'. These regulations impose 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 of WTO accession.
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. China closely followed the European emission standards when making up the national emission standards. China imposed nationwide stage four (Guo IV) emission standards and measurements for all new light gasoline vehicles on July 2011. A couple of municipal governments like Beijing are in the process of drafting stricter emission standards and administrative measurements.
Marketing your products and services
Several market entry strategies exist for Australian firms to enter the China automotive industry:
- Joint ventures or wholly owned foreign investment can be suitable 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 marketing, however, auto-related e-business in China is just starting. Online sales of new cars is still a new business model. With China’s less developed online payment system and difficulties establishing the business credentials of some companies in China, it means physical transactions are still most common and higher risks may be expected in online business transactions.
Links and industry contacts
Government, business and trade resources for China
China Association of Automobile Manufacturers – www.caam.org.cn/english
China Automotive Technology and Research Center – www.catarc.ac.cn
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
China Automotive Review – www.cbuauto.com
China Daily – www.chinadaily.com.cn
China Automotive Technology and Research Center – www.autoinfo.gov.cn
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