Gasgoo.com (Shanghai) - Ten years ago, former Ministry of Foreign Trade and Economic Cooperation Deputy Director and Head of the China Society for World Trade Organization Studies Sun Zhenyu was anxiously awaiting the opening of the fourth WTO panel discussion between economic leaders. What caused Mr. Sun to be especially anxious was the doubt of what would happen to the Chinese automotive industry if the country opened itself to the WTO.
A decade later, China's automotive industry, similar to agriculture and banking, has not been rendered obsolete by foreign competitors. Quite to the contrary, the industry received government funds reserved for private enterprises. Private domestic manufacturers, such as Geely, BYD and Great Wall, all managed to compete well with state-owned and foreign enterprises. What Mr. Sun could probably not have predicted back then, the Chinese automotive market would become the world's largest.
During the ten years of development, the face of the industry did not radically transform. What did occur is that with constant foreign investment, the industry became less centralized. As the industry grew at a never before seen pace, protectionist policies gradually fell out of favor.
Analysts at a summit on the globalization of the Chinese automobile industry held earlier this month pointed out to three major problems that have persisted during the past ten years: insufficient attention granted to technological innovation, neglecting auto part enterprises and poor forecasting of market growth, all of which have led to severe traffic problems and other societal ills. Meanwhile, the fact that domestic manufacturers have still not managed to surpass their foreign competitors in taking hold of the country's market is another serious problem.
Beijinger Wang Peng still remembers buying his first car, a FAW Tianjin Xiali sedan, ten years ago. The 130,000 yuan ($15,725) sedan cost most of his savings. Today the Xiali sells for only around 40,000 yuan ($6,302). Not long ago, Mr. Wang put out 200,000 yuan ($31,513) to purchase a Mini.
The fact that automobile prices in China match international levels has been a grave concern for the ordinary Chinese citizen wanting to purchase a car. A decade ago, the only consumers buying automobiles were government organizations and companies. Although GM and VW had already begun operating joint ventures in the country, their few customers consisted of wealthy business owners. The opening up of the automobile market to ordinary citizens has been of the notable changes of the last decade. Chinese automobile sales rose from slightly over two million in 2000 to 18.26 million last year, and are predicted to top 20 million this year. China has accounted for 23.5 percent of the global automobile industry in 2010, compared with only 3.5 percent in 2000.
The opening of the automotive industry has created a more competitive marketplace, with only the fittest and strongest surviving. This change has been especially felt by domestic manufacturers, who now face stiff competition from foreign manufacturers. In the past decade, GM, VW, Nissan, Hyundai and other multinational manufacturers have managed to achieve average Chinese sales of over one million units. By comparison, Chery and Geely have only managed an average of around 600,000 units sold. There are still other domestic manufacturers who have done far worse.
Multinationals are now commencing on intensive localization research to increase their market shares in the country. In past two years, foreign joint ventures have been further penetrating into the entry-level market, traditionally the stronghold of domestic manufacturers.
The technological disadvantage faced by Chinese manufacturers has made competition with foreign brands much harder than ever before. According to statistics, Chinese manufacturers produced over 18 million vehicles last year, only 540,000, or 2.98 percent, of which were destined for overseas markets. This ratio is not only worse than other countries specializing in automobile production, but is also behind other BRIC countries.
By comparison, automobile exports accounted for 76.29 percent of Germany's total production in 2010. Japan exported just under five million vehicles that year, while South Korean exports reached 2.77 million.
In terms of international takeovers, SAIC's buying Korean manufacturer Ssangyong, Geely's acquisition of Volvo and BeijingWest's purchase of a portion of Delphi's assets were among the only notable moves taken by Chinese manufacturers in the past decade. These business decisions received lukewarm, if not outright cold, media reception.
Earlier this month, Gasgoo.com (Chinese), in association with China Business News, conducted a survey of industry analysts and experts, asking how they viewed the opening up of the Chinese market to foreign competition. 60 percent of the respondents supported the government's decision to open up, believing that it help bring unprecedented wealth to the market and aided in modernizing the industry. Compared to idle years spent during the protectionist days, they believe that opening up the market helped revitalize it.
However, 26 percent of respondents believed that opening up the industry did more harm than good, believing that government protection had been undermined by foreign manufacturers, with continual poor performance by domestic manufacturers being evidence of this.
It remains to be seen if China can transcend strong automobile markets such as Brazil, Spain and Canada and join the ranks of Germany and Japan in becoming a leading manufacturer.
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