Frost & Sullivan Chinese Automotive Analyst Briefing


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Frost & Sullivan’s analyst briefing on the Chinese automotive market.

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Frost & Sullivan Chinese Automotive Analyst Briefing

  1. 1. Chinese Automotive Industry – Growth Prospects and Opportunities R.Sagitha, Research Analyst Economic Research and Analytics Automotive & Transportation October 9, 2008
  2. 2. Focus Points - Chinese Automotive Industry China – Country Profile Automotive Industry Definitions Chinese Automotive Industry – Overview Policy Overview Impact of Automotive Industry Policy (2004) Investment Policy and Automotive Investments Trade Agreements Automotive Industry Regulations Research & Development Automotive Sales and Trade Motor Vehicle Demand and Consumer Preferences Growth Opportunities 2
  3. 3. China – Country Profile Political Overview Economic Overview The real GDP growth in 2007 was 11.40 percent 12th term Presidential election was on March 22, 2008 Unemployment rate – 4.2 percent in 2007 Election was won by Ma Ying GDP per capita - $5,300 Inflation rate – 11.9 percent Demographic Indicators Exchange Rate Population in 2007 - 1,321 million Exchange rate USD to CNY – 6.84 Population growth rate – 0.60 percent Stead fast increase in the value of Yuan affects trade Percent of world population – 19.73 percent 3
  4. 4. Automotive Industry Definitions Automotive Industry Automotive Parts and Motor Vehicles Accessories Passenger Cars Commercial Vehicles Heavy Trucks Buses 4
  5. 5. Chinese Automotive Industry - Overview Chinese Automotive Industry Motor Vehicles Automotive Parts and Accessories • Emerged as the second largest • Around 5000 manufacturers but only automotive market in the world in 2007 a fraction of them are large • The automotive production for 2007 is • Increased government support 8.88 million • Huge presence of MNCs and joint • Vehicle production growth at 22.02 ventures percent and automotive sales rose to • Forms 43% of total automotive exports 21.84 percent 5
  6. 6. Policy Overview Development Trade of Science and Agreements Technology Program Fiscal Policy Investment Regulation Traffic and Taxes Regulations on Car Insurance & IPR Leasing Program Automotive Automotive Policies Policies 11th Five Year Industry Consumption Automobile Plan Policy Registration Tax Environment Anti- Regulations Monopoly Law 6
  7. 7. Impact of Automotive Industry Policy (2004) The Chinese government wants to encourage domestic manufacturers to develop renowned brands, hence more restrictions are placed on incoming investments. Joint ventures and technology collaborations are encouraged instead. Restrictions on import of used vehicles Lower limit for new investments Limit on holding by a Auto foreign company Policy Strengthening of domestic production and R&D Strict supervision on activities imports State intervention is present in the automotive industry. Large auto groups have to submit development plans to the National Development and Reforms Commission for approval. 7
  8. 8. Investment Policy China ranks 90th in terms of ease of doing business according to a Ease of doing Business World Bank report in 2008. The government aims to remove tax concessions offered to foreign Tax Differential investors and also fix the statutory corporation rate currently at 20 to 25 percent. Anti-Trust Law This law will aim to prevent the influence of multinationals in China. MNCs have dominated the Chinese market because they possess technological edge. China is expected to strengthen labor related regulations. This would Labor Policy target MNCs that do not have labor unions and encourage collective bargaining. Technology Collaboration China will focus more on R&D collaborations and technology transfers than mere volume of investment. Eight auto export zones were named in August 2006. Around 160 New Auto Export Zones manufacturers from these zones have been named national automobile and spare parts exporting enterprises. 8
  9. 9. Automotive Investments in China 2007-2008 JV Partners/Sole Investors Nature of the Deal/Investment Chrysler’s MoU with Great The agreement is expected to explore new opportunities for Chrysler related to distribution, Wall Motor components and technology in the Chinese market. Guangzhou-Toyota will set up a second production line at Guangdong, China. The Guangzhou-Toyota production is scheduled to start in mid-2009 with annual capacity of 120,000 vehicles. Yulon Motor - Zhejiang Yulon plans to produce SUVs, vans and sedans by 2010 in a planned joint venture with Zhongyu domestic partner Zhejiang Zhongyu. SKF The Swedish bearing-maker SKF has opened a new plant in Shanghai to support the growing demand from the local automakers in China with an investment of U.S. $25 million. DFL – Nissan (China) Dongfeng and Nissan will invest U.S. $145 million for a new LCV plant at the Henan province Investment Co. with annual capacity of more than120,000 vehicles. Asahi Glass Japan’s Asahi Glass’ has launched a new plant at Foshan with an investment of U.S. $44 million to establish a supply system of 2.2 million car sets annually in China. BorgWarner The auto-parts giant will launch its China Technology Center (CTC) at Shanghai, which is scheduled to start its operation by the end of 2009 with an investment of U.S. $120 million. MANN+HUMMEL MANN+HUMMEL will commence its fourth facility in China, which will manufacture filter systems and filters for the automotive OEM and aftermarket by January 2010. Ningbo Huaxiang - Fawer Ningbo and Fawer makes a JV investment of U.S. $142 million to establish a new auto parts company. A JV deal has been signed between the companies for sales of medium-and heavy-duty Daimler - Beiqi Foton trucks in China. 9
  10. 10. Trade Agreements s rea new a on ti F T A in opera o of c Pakistan China tarif cooper FTA and ec n fs f or India low nomic atio erin o Singapore To develop a feasibility g study on FTA between both FTA for lowering the countries tariffs and economic cooperation New Zealand China – ASEAN drafted FTA between the years 2002 and 2010 10
  11. 11. Automotive Industry Regulations Vehicle Taxes Emission Norms Fuel Economy Increase in consumption • Adoption of Euro IV norms • Use of clean diesel tax on passenger vehicles by 2010 – Beijing has • Di Methyl fuel buses with large engines adopted this standard • Release of fuel Preferential tax treatment • Adoption of new energy consumption statistics by for energy efficient vehicles like BEV, FCEV, NDRC automobiles hydrogen fuelled vehicles • Pending Fuel Tax • Retrofitting Beijing buses with clean diesel technology Safety Standards • Government officials to • “Technology Demand and use low emission, domestic Testing Measure on Brake vehicles by 2008 System of Passenger Vehicle”- 2008 • Developing on standards for child safety seats 11
  12. 12. Research & Development Europe and China are working on a Memorandum of Understanding (MoU) about Coal Gasification clean-coal technology during the EU–China Energy conference. China has plans to restrict bio-fuel production from corn and bio-diesel from oil Bio-Fuels crops. Instead, the Government of China is encouraging to produce bio-fuel from non-food sources. Engine test facility of the Chinese Research Academy of Environmental Sciences Fuel Quality Monitoring (CRAES) has been set up in Beijing to research on development of future fuels Facility and customized additives to improve fuel quality. Chinese company Chargeboard signed a contract with the Beijing Bus Company Hybrid Technology to promote hydraulic hybrid technology in the city. Beijing began testing hydraulic hybrid technology deploying 50 such buses. Technical development phase-2020; Market penetration phase-2050; Fully Hydrogen Economy developed market and infrastructure phase – beyond 2050. 12
  13. 13. Automotive Sales and Trade Automotive Sales Automotive Production 10 10000000 8 8000000 Units (Millions) Production Units 6 6000000 Passenger cars 4 Total sales 4000000 2 2000000 0 2001 2002 2003 2004 2005 2006 2007 0 2001 2002 2003 2004 2005 2006 2007 Year Source: China Today Year Source: OICA Trends in Passenger Car Market Production Trends •High level of growth in the passenger car segment •China has overtaken Germany in car production for between 20 and 30 percent annually since 2005 2007 •Concentration of passenger car dealers in developed •China’s domestic car production continued to grow provinces of China with the JV’s foreign car makers •The growth in the market is moving slowly faster due •A shift from cars driven by fossil fuels to cars driven to hike in fuel prices and vehicle purchase taxes by clean fuels 13
  14. 14. Motor Vehicle Demand and Consumer Preferences 2001 2010 100 60 > $5000 per annum million million > $10000 per annum 250 million 470 million 1.29 billion consumers 1.37 billion consumers Source: National Bureau of Statistics Consumer Preferences •The upper-middle-class drives the demand for cars in the price bracket of $3600 to $12,500. •Safety and reliability are the main purchasing criteria. •The affluent class in China is buying luxury brands. Auto manufacturers also offer captive auto financing to enable •Convenience of commutation is such purchases. another important reason for •The Chinese government insisting on authorized dealers in purchasing a car. the sales network, auto financing is likely to be a determining factor in the purchase of high-end models. •Brand is not top a priority for the average car buyer. 14
  15. 15. Chinese Automotive Industry - Growth Opportunities 1 Passenger Cars The per capita car ownership in China is around 7 or 8 per 1000. This is much lesser than the global average of 120 per 1000.So there is scope for growth of demand in the Chinese 2 Small Cars 6 Auto Parts market. Consumers demand wide ranges of The introduction of stricter features to be incorporated in the motor emission norms and tax vehicle. Many global players in the auto Chinese incentives for fuel efficient parts segment have entered China and Automotive vehicles has started working in are continuing to increase their Industry favor of small cars. investments. 3 Environment Friendly Vehicles 5 Mini Sedans China ‘s hydrogen economy plan The demand is likely to be high for mini sedans and economy 4 High Value Added Components and measures to promote fuel efficient vehicles will benefit vehicle cars. The high price of fuel will China presents a good opportunity manufacturers and parts makers push the demand for fuel for suppliers in OEM market and the who possess the technology. efficient vehicles aftermarket. Even though China’s auto parts export is considerably high, it still imports parts and components. 15
  16. 16. Chinese Automotive Industry - Growth Opportunities 1 New Fuels The Automotive Industry policy supports development of new fuels like alcohol fuel, natural gas and mixed fuel. The state also has in place a hydrogen economy roadmap. 6 Trucks 2 Ancillary Industries The Beijing Olympics 2008 has created Manufacturers of auto-related demand for special purpose vehicles. Chinese industries improve product The truck industry is set to witness a Automotive standards and market surge in demand due to Road Industry competitiveness to develop in step transportation and infrastructure with the auto industry. development projects. 5 After Sales Service 3 Auto Financing Services The government’s insistence on Companies that offer auto finance creating after sales service by 4 have the opportunity to create an Used Car market vehicle manufacturers or authorized entire value chain comprising of China drew rules allowing qualified services like dealer finance, leasing dealers opens up a great companies to engage in used car opportunity for auto parts and insurance services. sales in 2005.This will allow manufacturers. consumers to sell their used cars to authorized dealers and in exchange avail price cuts on new cars. 16
  17. 17. Your Feedback is Important to Us What would you like to see from Frost & Sullivan? Growth Forecasts? Competitive Structure? Emerging Trends? Strategic Recommendations? Other? Please inform us by taking our survey. 17
  18. 18. For Additional Information • To leave a comment, ask the analyst a question, or receive the free audio segment that accompanies this presentation, please contact Stephanie Ochoa, Social Media Manager at (210) 247- 2421, via email,, or on Twitter at 18