(Last updated: 31 Jul 2012)
Trends and opportunities
The automotive industry is one of China’s designated ‘pillar’ industries. In 2011, a total of 18.5 million vehicles were sold in China, of which 14.47 million are passenger vehicles and 4.03 million are commercial vehicles, according to the statistics from the China Association of Automobile Manufacturers (CAAM). Total vehicle sales increased 2.45 per cent over 2010, up 5.19 per cent for passenger vehicle sales and up 6.31 per cent for commercial vehicles. China became the largest automotive market in 2009 and maintained the leading position for three 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 and Guangzhou where dominant international players such as Volkswagen, General Motors, 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 for motor vehicles.
In 2011, the 12th Five-Year Guideline for China began. Developing new energy vehicles is 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 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 expects 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), promote hybrid vehicles and energy-saving ICE vehicles to a wider extent. The Plan sets forth the target of having 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 moved forward at a slow pace with only two major M&A deals in the past two years, ie. 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 R&D and development 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 is the detailed development priorities set forth in the Transport and Transportation Equipment Manufacturing of Item 19 and are encouraged by the government:
- 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
Besides, the development of new energy vehicles suggests opportunities in improving fuel efficiency, power battery research and development to make it safer, more reliable and lighter. The construction and technology of charging facilities are 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 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