Automotive to China
Trends and opportunities
China is now the world’s largest automotive market. In 2016, China's automobile production and sales exceeded 28 million units, having ranked first in the world for the past eight years. Of these, more than 14 million units were indigenous brand vehicles. Within the Chinese industrialisation process, no development may be more important than the growth of China’s automotive industry, which is a catalyst for many other linked sectors of the economy. In particular, China’s focus on the auto industry, and the supporting infrastructure and development patterns that accompany it, may have the potential to upset many existing manufacturing and trade relationships in significant ways that are, at present, unclear. For example, Chinese domestic automotive assembly firms appear likely to become significant exporters of buses to Australia in the near term.
After ten years of effort, the Chinese Government is determined that China enter the ranks of the world's automotive power nations. Core technology, corporate branding, and international market share are the basic elements of an automotive power nation. However, China's automotive industry still lacks core technologies, does not yet have a complete automotive industry chain from design through to showroom, and has limited technology exchange from international brands.
China's automobile production and sales are forecast to reach 30 million units in 2020 and 35 million units by 2025. By 2020, the annual target of new energy vehicles (NEVs) is expected to reach two million units and NEV production and sales is expected to account for 20 per cent of total auto production and sales by 2025.
By 2020, China aims to build a number of world-class automobile brands, to develop auto parts enterprises with sales to exceed CNY100 billion, and to foster the formation of a number of the world's top ten NEV enterprises. The aftermarket and service sector is expected to grow to more than 45 per cent of the value of the total automotive value chain.
A national intelligent connected vehicle R&D centre and several provincial level automobile innovation centres are under development. These R&D centres are expected to be completed by 2020. The first priority of the national innovation centre is to build batteries.
The Chinese Government is also encouraging development of a connected vehicle or smart vehicle industry. In 2016 NEV production in China reached 517,000 units. In 2015-16, more than one million Chinese NEVs were sold worldwide, accounting for more than 50 per cent of global market share.
In the field of public transport, private cars are likely to become the next ‘flash point’. The Chinese Government is planning to increase the proportion of NEVs providing public services, to expand the scale of application of NEVs in the private sector, to speed up the construction of charging infrastructure, and to build a highly efficient charging network.
In terms of technology, over the coming decade China aims to achieve an international advanced level in the powertrain system, efficient transmission system and automotive electronics. Over the same period, China aims to become the world leader in batteries, electric motors and other core technologies. However, in order to form an integrated industry, China has to break through the short board in advanced automotive electronics such as automotive sensors, automotive chips and lightweight materials technology.
The next step in intelligent network connected vehicles will focus on capturing environmental awareness, intelligent decision-making, collaborative control and other core technologies, while exploring the development of laws and regulations on autonomous vehicles. Connected cars or smart cars refers to the presence of devices in an automobile that connects to other devices within the car and /or devices, networks and services outside the car. To meet the demand for intelligent traffic city construction, the market penetration of new vehicles equipped with DA (driver assistance), PA (partial assistance), and CA (conditional assistance) is targeted to reach 50 per cent by 2020 and 80 per cent by 2025.
By 2020, average fuel consumption of new passenger vehicles (NPVs) and NEVs is targeted to be lowered to 5.0L/100km and 4.5L/100km, respectively. Meanwhile, average fuel consumption of commercial vehicles (CVs) should be comparable to leading international standards with the adoption of the national VI emission standard. By 2025, average fuel consumption of NPVs should reach 4.0L/100km and CVs’ fuel consumption should stay comparable to the leading international standard.
The Chinese Government encourages cooperation between Original Equipment Manufacturers (OEMs) and suppliers, and is grooming auto suppliers with over RMB100bn revenue, core technology ownership and strong global competitiveness. The ultimate goal is to have world leading OEMs and component suppliers by 2025 by increasing global market share, utilising foreign capital and importing advanced technology and talent, as well as encouraging JVs to increase R&D expenditure, and gradually relaxing foreign OEM JV shareholding limits.
By 2020/25, the after-market service revenue is expected to reach 45 per cent/55 per cent of the total auto industry value chain’s revenue.
Some of the targets above, including NEV sales and fuel efficiency targets, are already mentioned in government papers and should support the trend towards strong NEV demand growth. For the remaining targets, the adoption of driving assistance systems (connected vehicles), together with tightened fuel efficiency requirements going forward, should provide new business opportunities to innovative part suppliers.
(Source: Reports from Ministry of Industry and Information Technology of the People’s Republic of China/Ministry of Science and Technology of the People’s Republic of China/National Development and Reform Commission).
- lightweight new materials technology
- battery R&D
- intelligent automotive network
- automotive electronics
- intelligent traffic city construction.
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’, 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.
The China-Australia Free Trade Agreement (ChAFTA) will improve Australia’s competitive position in manufacturing exports and investment areas. Under ChAFTA, tariffs of up to 20 per cent on car parts and engines will be eliminated by 1 January 2019.
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 five (Guo V) 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. And China's Ministry of Industry and Information Technology has begun studying the industry and will begin making a timeline for when the country will stop making and selling gas-powered automobiles.
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 is 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. 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. And on 11 Nov 2016, over 100,000 units were sold as part of Singles’ Day promotions.
Links and industry contacts
Ministry of Industry and Information Technology of the People’s Republic of China
Ministry of Science and Technology of the People’s Republic of China
National Development and Reform Commission
China Automotive Engineering Research Institute Co., Ltd
Global Auto Sources
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