Chinese Automotive Industry – Growth Prospects
and Opportunities
R.Sagitha, Research Analyst
Economic Research and Analytics
Automotive & Transportation
October 9, 2008

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

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

Automotive Industry Definitions
Automotive Industry
Automotive Parts and
Motor Vehicles Accessories
Passenger Cars
Commercial Vehicles
Heavy Trucks
Buses
4

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

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

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.
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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

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.
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Trade Agreements
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F T A in opera
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Pakistan China
tarif cooper
FTA and ec n
fs
f or
India
low nomic
atio
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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
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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
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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.
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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
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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.
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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.
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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.
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