China's Carmakers at the Crossroads
By Jim Hemerling
Updated: 8:00 p.m. ET May 31, 2006
Chinese manufacturers have moved onto the global stage with unprecedented speed and efficiency. China is already the world's largest producer of aluminum, cement, copper, and steel. It dominates the low-end consumer market in everything from textiles to consumer electronics, and it has surpassed the U.S. as the world's largest exporter of many information technology products. China's economy is growing at an annual rate of 8% to 10%. Per-capita gross domestic product has reached $1,600 -- and has nowhere to go but up.
The question isn't whether the Chinese manufacturing juggernaut will continue, but what is the next area of domination. One possible answer is automobiles. New-car sales in China hit 3.1 million last year. In the first three months of this year, new-car sales topped 890,000, Xinhua News Agency reports, a 74% increase over the first quarter of 2005. Domestic manufacturers -- China First Automobile Works, Dongfeng Motor, Chery Automobile, Geely, Great Wall, and others -- dominate the low end of the market. The mid-to-high end is dominated by foreign joint ventures, such as Shanghai General Motors, a joint venture between Shanghai Automotive Industry and GM (GM).
Story continues below ↓
advertisement
ad_dap(250,300,'&PG=NBCBU4&AP=1089');
Chinese auto exports last year exceeded 172,600, according to the China Customs agency. But that's just the beginning. One of the country's leading domestic car companies, Chery Automobile, which introduced its first model just six years ago, has announced plans to begin exporting to the U.S. and Europe next year, and has set an ambitious first-year U.S. sales target of 250,000.
Now what? Chinese auto manufacturers have two options: They can "move up" and increase their position in China, or they can "move out" into the export market and challenge DaimlerChrysler (DCX), Ford (F), GM, Honda (HMC), Hyundai (HYMZY), Nissan (NSANY), Toyota (TM), Volkswagen, and other well-established brands. To understand which path they will likely take, we need to explore several driving forces: capital, regulations, markets, products, and distribution.
CAPITAL.
Whichever route Chinese auto makers take, capital availability should not be a limiting factor. Capital is widely available from the mainland's state-controlled banks. Local governments strongly encourage local lending as regions compete to secure their share of the industry. Foreign investors, looking to participate in China's lucrative auto future, seem more than willing to ignore such fundamentals as supply/demand balance and market conditions. In short, lots of capital should be available for both domestic and export expansion.
REGULATIONS.
Domestically, Chinese manufacturers can expect to win easy approval for expansion plans and benefit from government automotive policy, which is designed to ensure the success of Chinese manufacturers producing Chinese brands with Chinese technology. Getting approvals in foreign markets is different. Foreign regulators will be driven by environmental and safety concerns or by outright protectionism. The lucrative North American and European markets will be the most difficult to penetrate. Even smaller markets in Asia are proving tough to enter. The regulatory environment, therefore, heavily favors domestic development over international expansion.
MARKETS.
China's domestic passenger car market is already the world's fourth largest, growing at 20%-plus annually. But the Chinese market also suffers from significant excess capacity [in the order of 100%], as foreign and domestic manufacturers vie for market share by investing in new facilities and launching new models. In the face of punishing domestic competition and excess capacity, international markets will appear attractive to some Chinese auto makers, especially weaker players looking for respite from the harsh reality of the domestic market.
Some Chinese manufacturers will also look to global expansion to leverage their low-cost, low-end vehicles. But international markets will be difficult to enter due to consumer acceptance and regulatory factors. The bottom line: Despite the hyper-competitiveness, the domestic Chinese market should be more attractive to most Chinese auto manufacturers than export markets.
..
Tags: china auto
Updated: 8:00 p.m. ET May 31, 2006
Chinese manufacturers have moved onto the global stage with unprecedented speed and efficiency. China is already the world's largest producer of aluminum, cement, copper, and steel. It dominates the low-end consumer market in everything from textiles to consumer electronics, and it has surpassed the U.S. as the world's largest exporter of many information technology products. China's economy is growing at an annual rate of 8% to 10%. Per-capita gross domestic product has reached $1,600 -- and has nowhere to go but up.
The question isn't whether the Chinese manufacturing juggernaut will continue, but what is the next area of domination. One possible answer is automobiles. New-car sales in China hit 3.1 million last year. In the first three months of this year, new-car sales topped 890,000, Xinhua News Agency reports, a 74% increase over the first quarter of 2005. Domestic manufacturers -- China First Automobile Works, Dongfeng Motor, Chery Automobile, Geely, Great Wall, and others -- dominate the low end of the market. The mid-to-high end is dominated by foreign joint ventures, such as Shanghai General Motors, a joint venture between Shanghai Automotive Industry and GM (GM).
Story continues below ↓
advertisement
ad_dap(250,300,'&PG=NBCBU4&AP=1089');
Chinese auto exports last year exceeded 172,600, according to the China Customs agency. But that's just the beginning. One of the country's leading domestic car companies, Chery Automobile, which introduced its first model just six years ago, has announced plans to begin exporting to the U.S. and Europe next year, and has set an ambitious first-year U.S. sales target of 250,000.
Now what? Chinese auto manufacturers have two options: They can "move up" and increase their position in China, or they can "move out" into the export market and challenge DaimlerChrysler (DCX), Ford (F), GM, Honda (HMC), Hyundai (HYMZY), Nissan (NSANY), Toyota (TM), Volkswagen, and other well-established brands. To understand which path they will likely take, we need to explore several driving forces: capital, regulations, markets, products, and distribution.
CAPITAL.
Whichever route Chinese auto makers take, capital availability should not be a limiting factor. Capital is widely available from the mainland's state-controlled banks. Local governments strongly encourage local lending as regions compete to secure their share of the industry. Foreign investors, looking to participate in China's lucrative auto future, seem more than willing to ignore such fundamentals as supply/demand balance and market conditions. In short, lots of capital should be available for both domestic and export expansion.
REGULATIONS.
Domestically, Chinese manufacturers can expect to win easy approval for expansion plans and benefit from government automotive policy, which is designed to ensure the success of Chinese manufacturers producing Chinese brands with Chinese technology. Getting approvals in foreign markets is different. Foreign regulators will be driven by environmental and safety concerns or by outright protectionism. The lucrative North American and European markets will be the most difficult to penetrate. Even smaller markets in Asia are proving tough to enter. The regulatory environment, therefore, heavily favors domestic development over international expansion.
MARKETS.
China's domestic passenger car market is already the world's fourth largest, growing at 20%-plus annually. But the Chinese market also suffers from significant excess capacity [in the order of 100%], as foreign and domestic manufacturers vie for market share by investing in new facilities and launching new models. In the face of punishing domestic competition and excess capacity, international markets will appear attractive to some Chinese auto makers, especially weaker players looking for respite from the harsh reality of the domestic market.
Some Chinese manufacturers will also look to global expansion to leverage their low-cost, low-end vehicles. But international markets will be difficult to enter due to consumer acceptance and regulatory factors. The bottom line: Despite the hyper-competitiveness, the domestic Chinese market should be more attractive to most Chinese auto manufacturers than export markets.
..
Tags: china auto
posted by Smartcar Owner at 7:54 PM
0 Comments:
Post a Comment
Links to this post:
Create a Link
<< Home