Automotive to China
Trends and opportunities
The automotive industry is one of China’s designated ‘pillar’ industries. In 2013, a total of 21.98 million vehicles were sold in China, of which 17.92 million were passenger vehicles and 3.98 million were commercial vehicles. Total vehicle sales increased 13.9 per cent in 2012 and 2.95 per cent for commercial vehicles. (Source: China Association of Automobile Manufacturers (CAAM), The sales and production set another record and enjoyed a dramatic growth, 13 Jan 2014).
China became the world’s largest automotive market in 2009 and has maintained its leading position for four consecutive years. Over the past decade, the annual vehicle sales jumped 10-fold, as rising affluence and government incentives boosted demand. In 2012 total automotive sales reached 19.50 million, with luxury car sales increasing rapidly and sales reaching 1 million units.
The manufacturing of passenger cars is a national priority. 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 five original equipment manufacturers (OEM) 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.
(Source: China Association of Automotive manufactures (CAAM) 20 Nov 2014)
Historically much of this success has been achieved through the use of joint ventures, which make up some 55 per cent of the car market and include cooperation with Volkswagen, Audi, General Motors and Toyota. This trend is beginning to change with local brands playing an increasingly important role in the auto markets. This transition can be seen through the development of local brands including BYD, Chery, Geely, Great Wall and JMC.
China’s automotive OEM and component industries are located across the country and consist of approximately 130 vehicle makers (passenger car, buses and trucks) and 3000 automotive component manufacturers. Eastern provinces, specifically Jiangsu, Shanghai and Zhejiang have a high concentration of automotive component manufacturers and are home to more than 32 per cent of China’s automotive component industry. Nanjing is an automotive centre with more than 200 tier one component manufacturers.
In 2011, the 12th Five-Year Plan (2011 to 2015) was launched. The automotive industry is one of the seven strategic industries that the government is looking to develop and new energy vehicles are a focus, given their role in 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 RMB 1 million 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 1 million units by 2015. The government 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 to 2020) was released. Development of electric vehicles is the strategic goal of the Chinese automotive industry over 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 the 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, e.g. 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:
- electrolytic aluminium
- rare earths.
The guidelines called 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 2011 the top 10 OEMs were responsible for 87 per cent (in total over 16 million units) of the country’s automotive production and sales. To improve economies of scale, the government planned to reduce the number of producers to 10 by 2011 with annual output capacity of over one million each. The 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. (Source: China Association of Automotive manufactures (CAAM), 20 Jan 2012 – Chinese)
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, which removes ‘complete vehicle manufacturing’ from the ‘encouraged’ to ‘permitted’ category, considering the abundance of FDI in this area.
The government encourages investment in R&D and new energy vehicles. Detailed development priorities of manufacturing:
- and R&D of engines
- key automotive components and parts and R&D of key technologies
- and R&D of automotive electrics and electronics
- 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 improve the reliability and safety of vehicles. Construction and technical upgrading of charging facilities is also needed to foster the development of EV infrastructure.
Opportunities also exist in the following areas:
- Auto safety systems including anti-lock braking system (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 composite 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, star-stop and super capacitor systems.
Foreign car manufacturers in China such as Volkswagen and General Motors are interested in purchasing components worldwide, rather than purchasing from the local market, due to quality issues.
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 and a 17 per cent Value Added Tax (VAT) 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.
A regulation known as 'whole vehicle character’, 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.
The China-Australia Free Trade Agreement (ChAFTA) will eliminate China’s tariffs on virtually all Australian manufactures. ChAFTA will improve Australia’s competitive position in manufacturing exports and investment areas. The 10 per cent tariff on car engines will be eliminated within four years.
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. When drafting its own national emission standards, China closely followed the European standards and imposed nationwide stage four (Guo IV) emission standards and measurements for all new light gasoline vehicles. Several 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 are effective for initial market development.
- International auto exhibitions are suitable and productive 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.
- It is a worthwhile to establish contact with Austrade at an early stage of your market strategy. Austrade has an experienced team of BDM’s dealing with the Chinese auto industry.
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 are still a new business model. Physical transactions are still the most common method of car sales due to the undeveloped nature of the online payment system and the difficulties associated with establishing the business credentials of some companies in China. However, we have found that online sales on Taobao have been increasing rapidly with 12 478 units being sold through the website in 2013 and 37 117 units sold in 2014.
Links and industry contacts
Government, business and trade resources
China Association of Automobile Manufacturers
China Automotive Technology and Research Center
China Automotive Review
China Automotive Technology and Research Center
China Gasgoo Auto
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
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