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 A Brief Introduction to the History of China's Auto Industry
In 1953, China established the First Automotive Works in northeast city of Changchun, Jilin Province, marking the start of China's own auto industry. It saw the birth of the first Chinese-made sedan and truck. From a thousand Chinese cars and trucks a couple of decades ago, the group has today evolved into a conglomerate with joint ventures that have produced several million automobiles. At the same time, Tsinghua University began to award the country's first degrees in Automobile Engineering.
"The First Automotive Works was then a typical enterprise, turning out ‘Jie fang' motor cars and trucks. That was the starting phase of China's auto industry. The second phase lasted from the Cultural Revolution to the time before China's opening up. The Second Automotive Works and the Capital Automotive Works were established, manufacturing heavy trucks for combat readiness. The third phase came after China's opening up. This period of auto manufacturing centers on international cooperation and aims to offset the imbalance between heavy and light auto production. Passenger cars are being developed very fast. Technology transfer, especially in the production of passenger cars is the feature of the time. We set up many joint ventures and achieved good result in mass production. This is a historical leap forward," said Ouyang Minggao, dean of Dept. of Automotive Engineering of Tsinghua University.
The total output of the auto industry was only 500,000 cars in 1990. While in 2002, the figure surged to more than 3.2 million units. In the first quarter of this year, the entire industry produced over 1 million vehicles. In 2002, the auto industry's sales revenues accounted for 5.2 percent of total industrial sales, up from 2.2 percent in 1990 and 4.4 percent in 2001. The ratio rose to 6.2 percent in the first quarter of this year.
In the course of becoming a global manufacturing center, the auto industry has become the driving force for China's modernized industry. The latest research from China's National Bureau of Statistics shows that auto production has become the country's fifth largest manufacturing sector. The figures suggest that China will become the fourth largest auto manufacturing country in the world in 2003 after the US, Japan and Germany.
In ancient times, most people depended on their feet to get around. Only the wealthy could afford horse-drawn carriages. Keeping stables was costly and owning a carriage therefore became a symbol of high social status. China's first passenger car was made for the nation's top leaders. Only a decade ago, the car was regarded as a luxury that no ordinary person could ever dream of. Today, the automobile has gradually become, for many Chinese families, a daily necessity.
An Overview of China's Auto Industry in Past 5 Years
Since China joined the World Trade Organization (WTO) in 2001, its auto industry has experienced a major turning point and a fast growth.
Decreasing car prices enable more and more Chinese people, especially some newly rich, to enjoy a lifestyle that they once could only experience in western movies and advertisements.
As one of the commitments to the WTO, China's average tariff level has dropped down from 15 percent in 2001 to just below 10 percent in 2006. In terms of the tariff on automobiles, the drop is more significant.
The most recent decrease of the tariff on imported vehicles occurred in July, 2006, down from 28 percent to 25 percent. In 2001, the tariff on automobiles was as high as 80 percent to 100 percent. Thus, by the middle of 2006, China had fully implemented its WTO commitments to tariff decreases in the automobile industry.
Furthermore, some trade barriers in the auto industry, as well as an import license system, have been abolished so as to stimulate a growth in imports.
Statistics from Chinese Customs show that China's vehicle and vehicle parts imports have experienced a rapid increase since WTO accession, from US$4 billion in 2001 to almost US$16 billion in the first three quarters of 2006.
One reason for the sharp increase in imported vehicles is that they are much cheaper than before. For example, the price of a Mercedes Benz S600 fell by 1.1 million RMB yuan in 2002. Other luxury cars, such as BMW's and Audi's, were about 15 percent-20 percent cheaper in 2003 than those sold before WTO accession.
Li Huanxin, a General Motors dealer, said that cheaper imported vehicles also compel domestic carmakers to lower their products' prices. In 2002, one year after WTO accession, carmakers lowered their prices 29 times over the space of 12 months and China's auto market experienced a "blowout." A year later, in 2003, they lowered their prices 60 times.
"Now you can buy a homemade Buick with 160,000 RMB yuan, which would cost more than 200,000 yuan five years ago", said Li.
"The government and companies were once our major customers, but now increasing numbers of householders buy our cars. Furthermore, young people have become a major consumption force", said Li, who bought a Buick Sail made by Shanghai General Motors (GM), two years ago at the age of 26.
Almost all of the international car giants, such as Toyota, Honda, GM, Volkswagen, and Ford have increased their investment in China with a number of joint ventures being set up. The cheaper prices that result from these joint ventures are enabling more and more Chinese people to afford cars.
Consequently, vehicle production in China has rapidly increased. According to the China Association of Automobiles Manufacturers (CAAM), the vehicle output of China in 2005 was almost 6 million, making it the third largest car-making country in the world, only after the United States and Japan.
After-sale services in auto markets are developing rapidly in this period. Auto dealers and franchised stores have set up all over the country, offering customers convenient environments for purchasing. Local governments also laid out corresponding promotion plans.
The Near Future of China's Auto Industry
After achieving WTO status, the Chinese media along with some domestic experts prophesized doom, and their concerns now seem to have been well-founded. Without a tariff barrier, and with their joint ventures in China, foreign-branded cars now hold almost 70 percent of the domestic market share.
Cars with foreign brands are now running all around the country, but ironically most of them are made in China. Some sections of the audience at the Beijing Automobile Show expressed a strong interest in these Chinese manufactured foreign cars.
The Economic Observer recently commented that China's auto industry had gained a domestic market, but had lost its international competitive strength.
Commenting on the pros and cons of joint ventures, Prof. Hu Shuhua with Wuhan University of Technology stated that, "Cooperation with foreign car companies brings capital and technologies, but also leads to over-dependence on foreign technologies, and inadequate capacities for independent innovations." Prof. Hu is somewhat an expert in this field, as he is also head of the National Automotive Innovation Program's research group, under the auspices of the Ministry of Science and Technology.
In the traditional auto industry, small scale implies low productivity and poor competition. During 2001, the total vehicle output of China accounted for only one fourth of that of GM, and only four enterprises had an output capacity of more than 200,000 per year.
Finding themselves in such a predicament, domestic carmakers have started to try and find ways to take the bull by its horns and tackle the challenge of competition head-on. One benefit of the joint ventures is that they offer the benefits of agglomeration economies, in which they are constantly expanding their own capacities and acquiring new knowledge from the partnership.
For instance, with the know-how learned from its long-term partners GM and Volkswagen, Shanghai Automobiles Industry Corporation (SAIC) launched its first self-branded car, the Roewe 750. A new car named Besturn made by First Auto Works, one of China's largest carmakers, also benefits from technologies used in the Mazda 6.
Chang'an Group have also introduced a series of self-branded cars recently, a salesman representing Chang'an at the Beijing Automobile Show commented that, "We have strengthened capabilities for independent R&D, as we've sensed the brutal competition." Asking to remain anonymous, the Chang'an salesman's comment on his company's experience post-WTO accession is representative of that of most of the domestic car manufacturers.
Nowadays, a number of Chinese-branded cars, such as Chery, Geely, and Brilliance, are known throughout the country. Their market share is still small; however, it is on the rise, from 25 percent last year to 30 percent in the first five months this year.
"Homemade cars are now better in quality and technology than before", said Li Huanxin, who has worked as a car dealer for five years and had clearly witnessed radical changes in Chinese car industry. He attributed this change to the benefits of operating alongside foreign car manufacturers, in which they offer an opportunity to make money in join ventures instead of facing a battle of David and Goliath.
Statistics show that China exported around 127,000 vehicles over the 19 years from 1980 to 1998, while nearly 173,000 were exported just in 2005. Thus, the Chinese auto industry has made its impact on the global market, albeit mostly in Africa, the Middle East and some economically less developed areas.
While celebrating its booming car market, China has also set its goal for the future. China's high-ranking officials are now paying increasing attention to Chinese branded cars.
Chinese branded cars and independent capacities for R&D have also gained priority in the government's 11th "five-year development program."
Accession to the WTO has helped to develop China's car market, but there is still a long way ahead. After several years of hiding in the wings of their foreign counterparts, Chinese car manufacturers now seem to be adapting their capabilities for direct competition with these car giants in an open market.(Source: Xinhua News Agency)
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