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Organization of the logistic chain in the Chinese international trade IV. MAJOR INDUSTRY SNAPSHOTS IV.I. Automotive and components/parts Industry China Central government has pointed the Automotive industry as one of the key industries of China and is encouraging local OEM’s (original manufacturers) to initiate exports. Automotive industry overview China is the fastest growing vehicle producer worldwide. With an annual production of near 6 Million vehicles manufactured, China surpassed Korea and France and was near to overtake Germany in 2005 and become the third national vehicle producer, after USA and Japan. China, India and Thailand, major manufacturing centers in Asia, are increasingly challenging the dominance of Korea and Japan. Since 2000, China’s output was mainly constituted by heavy vehicles but since 2000, the output growth is due to the increase in passenger car production, which in 2005 account for half of the total production. China Passenger car ownership is still very low, 7 per 1.000 in 2004. (EIU). Economic growth, low car ownership rates and rising incomes are likely to steadily increase car sales. However domestic demand is still low and may not be able to absorb planned production capacity in the near future. Unlike other Asian major vehicle producers like Thailand or India, exports haven’t been important for China. China became a net exporter for the first time in 2005, exporting less than 2-3% of its total production, and the main destinations of the vehicles were Russia, Ukraine and the Middle East. China automotive industry has developed through foreign investment from major international manufacturers (Volkswagen, General motors, etc.) which until now, are not willing to begin exports to European markets. However Chinese domestic automakers have also become important players in the domestic market and are now increasing its overseas investment activities, mainly in the Asia-pacific area although some steps are done towards western markets. Moreover, the Automotive sector in China suffers from over-investment and manufacturers are beginning to look to exports as a way to manage overcapacity in the Chinese market. China’s vehicle production capacity more than doubled from 3.96 million units in 1998 to 8.32 million in 2004. According to Industry reports, there are 184 vehicle production plants existing in China in 2005, with the capacity to produce 10.81 million vehicles. The capacity is expected to rise to 14.78 million units in 2007 and to 17.47 million units in 2010. Chinese companies that are planning to export cars to European market are those less dependent on international manufacturers. Exports, however, are still slowed down as these vehicles do not meet safety and emission standards in Western countries. Moreover, to succeed in the global market, Chinese manufacturers have to improve business performance, build overseas sales networks, acquire marketing skills for foreign markets and build up trust by providing repair service and quality guarantee. CEIBS Port of Barcelona Chair of Logistics 37
Organization of the logistic chain in the Chinese international trade Total Production Capacity by type of vehicle (million units) Type of car 2005 2010 Passenger Car 6.93 12.51 Mini Vehicle 1.13 1.40 Commercial Vehicle 2.99 3.55 Total 10.81 17.47 Source: www.Fourin.com. China Automobile Weekly statistics. October 2005 Passenger Car Total Production Capacity by origin of automaker (million units) Automaker 2005 2010 Chinese production capacity 2.87 4.93 Japanese production capacity 1.62 3.24 European production capacity 1.23 1.96 Korean production capacity 0.50 1.17 US production capacity 0.71 1.21 Total 6.93 12.51 Source: www.Fourin.com. China Automobile Weekly statistics. October 2005 Chinese government is considering regulating overcapacity of the Industry by forbidding companies with plants operating below 80% to establish new plants. This new regulation is expected by the end of 2006. Domestic-made passenger car sales by type of vehicle (2005) Type of Vehicle 2005 First half 2006 Medium/ large sedan 703.738 505.312 Small car 1.159.084 761.811 Basic Car 898.021 517.371 MPV 187.441 116.809 SUV 183.656 116.203 Utility vehicle 831.450 498.058 Total 3.963.400 2.516.935 Source: www.Fourin.com. China Automobile Weekly statistics. August 2006 CEIBS Port of Barcelona Chair of Logistics 38
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