1. 1 The Future of China ’ s Automobile Industry Xingmin Yin China Center for Economic Studies Fudan University

2. 2 1. Introduction  The bad economy does hit all car sales.  Production of passenger cars and light trucks declined from 70.9 million units in 2007 to 68.1 million in 2008. Sales figures tell a similar story, falling from 69.5 million vehicles in 2007 to 66.3 million in 2008; the number is forecasted to sag further to 59.2 million in 2009.  The industry as a whole is facing an unprecedented combination of cyclical and structural issues.

3. 3  The outlook is now negative across the whole auto industry except for China.  All the established auto makers will need to take this opportunity, during the downturn, to rethink their strategies and ponder what they should be doing over the next 10 or 15 years.  Where can the major global auto makers find their new markets?  How does China fit the future of global auto industry?

4. 4 2.China ’ s Place in Global Automobile  The auto industry is one of the key sectors of Chinese economy.  The industry continues to grow, registered 20 percent per year over the period 2002-2007; and 13 percent in 2008.  The China ’ s auto industry made over about 10 million cars, vans, tracks and buses in 2008.  Changes of the global league table over the period 2000-2007.

5. 5 The Global League Table 2007 Vehicles( ‘ 000) Share(%) 2000 Vehicles( ‘ 000) Share(%) 1. Japan 11596 15.851. USA 12800 21.93 2. USA 10780 14.742. Japan 10141 17.37 3. China 8882 12.143. Germany 5527 9.49 4. Germany 6213 8.494. France 3348 5.74 5. Korea, Rep. 4086 5.595. Korea, Rep. 3115 5.34 6. France 3016 4.126. Spain 3033 5.20 7. Brazil 2971 4.067. Canada 2961 5.07 8. Spain 2890 3.958. China 2069 3.54 9. Canada 2578 3.529. Mexico 1936 3.32 10.India 2307 3.1510.UK 1814 3.11 Others 17834 24.38Others 11630 19.89 Global Total 73153 100.00Global Total 58374 100.00

6. 6 New Development in 2008  Japan was the undisputed leader in light vehicle production in 2008, at 11 million.  U.S. output dropped by 2 million to 8.5 million (and may fall as low as 6.3 million in 2009).  China edged into second place with 8.52 million (with 10 million projected in 2009).  In fourth place is Germany, with 5.8 million vehicles, down from 6 million.  Korea, Brazil, France, Spain, Mexico and Canada accounted for the remainder of the top-10 light vehicle makers in 2008.

7. 7 China ’ s Share of Global Auto Production %

8. 8  Clearly, China ’ s share of global auto production has been increasing since 2000.  In total, China will produce roughly 11 million vehicles in 2009, up from 10 million the year before.  Somewhere around 2010-2012, China will surpass Japan as the world ’ s largest auto producers.

9. 9 3. Capacity Expansion in Auto Industry  A big shift in the global auto industry  While global players are turning to the emerging markets such as China for profits they can no longer realize in the United States, Europe and Japan, domestic manufacturers in China are building up their own auto industry with technology transferred by the multinationals through joint ventures.  Discussion on development strategies for homegrown auto makers in the past years.

10. 10 3.1 Homegrown Auto Makers  Industry policy on JV.  Currently, about 65 percent of cars made in China are manufactured by non-Chinese companies.  But multinational auto makers also face keen competition from homegrown manufacturers in China.  Can Chinese homegrown auto makers survive in their competition with leading multinationals?

11. 11  Chinese manufacturers like Shanghai Automotive Industry Co. (SAIC), Chery automobile Co., Geely Automotive Holdings, Dongfeng Motor Group, Great Wall Motor and BYD Automobile make and sell their own independent brands.  Some homegrown manufacturers have even begun exporting and established overseas plans to enter the global markets.

12. 12 Growth of Homegrown Auto Production Group20032004200520062007 FAW556587639394691 Beijing Automobile262539559298454 Dongfeng Motor368442593258437 Chery101/186319428 SAIC228309518207313 Hafei200206225265231 Geely/92150207217

13. 13 Group20032004200520062007 Anhui Jianghuai9413116763210 Great Wall/556840123 Jiangxi Changhe118104116137112 BYD///60101 Sub total19212465312122473316 % of Total43.2448.4254.0730.8737.31 Total44445091570572798889

14. 14  Very significantly, both the production of automobiles, and in the related auto-parts industry, China ’ s auto makers are pushing for influence both within China ’ s expanding domestic market and through exports, particularly through partnerships with foreign companies.  It is possible to judge that homegrown auto makers will grow up in the booming markets.

15. 15 3.2 Global Value Chain: Learning by Ex-Importing  Export-oriented industrialization theory has had a significant impact on China ’ s automobile indusial policies, especially since China ’ s entry into the WTO in 2001.  The Chinese automakers are getting in the world auto industry and are going to affect some automakers more than others.

16. 16 China ’ s Auto Ex-Imports USD million

17. 17 Vehicle Exports  The export amount of vehicles from USD1.34 billion in 2000 to USD9.6 billion in 2008.  Will China ’ s exports of vehicles follow the model of Korea in the coming decade?  If experience or history teach anything, it takes 10 to 15 years for a foreign auto maker from a developing country to be a serious contender in a developed market.  It is noticed that one of the biggest China- related shifts thus far is not in the production of automobiles themselves, but the exports of parts and components.

18. 18 Ex-Imports of Auto Parts USD million

19. 19 Auto-Parts Exports  This boom in Chinese parts exports, coupled with the many multinational automakers now setting up shops in China, has convinced virtually every first-tier parts supplier to open extensive operations in China. Major first tier suppliers include Bosch, Delphi, Valeo, Denso and Siemens, et..  By 2002, virtually all of the major global assemblers had established major operations in China. VW and GM led the way, the three largest Japanese assemblers and major Korean firms strove to make up for lost time.

20. 20  China ’ s exports of auto parts continue to increase from USD1.12 billion in 2000 to USD14.82 billion in 2008. This performance is better than that of vehicle exports.  In results, China is becoming the largest production base of global auto parts and components.

21. 21 3.3 Production Chain with Regional Diversity  Geographical distribution of homegrown auto makers.  A wave of large-scale industrialization has been expanded into major regions in China.  Diversified production bases have been strengthened in China ’ s automobile industry.  Five auto-production clusters spread over China: Yangtze Delta: 31%; Pearl Delta: 17.53%; Bohai Ring: 16.8%; North-East: 16%; Hubei & Chongqing: 14.72%.

22. 22 Regional Auto Production ( ‘ 000) Region20032004200520062007% Beijing73.3182.2220.9270.2202.84.23 Tianjin172.5219.8325.6410.3454.39.47 Shangdong38.050.287.0106.7151.83.16 Shaanxi20.117.216.159.1100.42.09 Liaoning33.937.316.989.1148.63.10 Jilin350.7337.1299.4401.4576.812.02 Heilongjiang32.428.749.968.142.50.89

23. 23 Regional Auto Production ( ‘ 000) Region20032004200520062007% Shanghai574.3549.9480.9665.6801.516.71 Jiangsu84.289.9141.6146.0114.92.40 Zhejiang20.180.8114.2152.1175.43.66 Anhui124.879.6181.6275.7328.96.86 Jiangxi/26.845.064.965.81.37 Fujian35.727.937.034.440.00.83 Guangdong117.2266.5368.6508.0726.315.14 Hainan42.653.558.867.9114.52.39 Hubei171.688.0141.7240.5294.86.14 Chongqing120.6157.3153.3263.0411.88.58

24. 24  The contribution of leading auto multinationals to the homegrown auto industry, especially in Yangtze Delta and North-East region.  The unified auto and auto-parts production system will be consolidated, based on the technology diffusion from leading auto multinationals.  Advantages in diversified regional production system.

25. 25 3.4 Brief Comments on Auto-Industry Stimulus Policy  The auto-sale tax reduction, with the current 10% rate to be cut to five, or even zero for one or two years;  To promote car sales in rural and remote areas, with such measures to boost sales of smaller sedans and light-duty trucks suitable for narrower roads in less-developed regions;  To subsidize vehicle purchases to replace older models, this measure would benefit fleet operators.

26. 26 4. Growth Drivers for Auto Production  A growing economy is real good news for auto production.  In China, annual economic growth averaging 10 percent over the past decade has made cars affordable to more people.  Is it possible for China to keep a ballooning demand for vehicles?  Citizen ’ s income is quite difference among various regions due to China ’ s huge size and geographical diversities.

27. 27 China ’ s GDP per capita USD

28. 28  GDP per capita is a good indicator for the estimation of production and sales in terms of market demand.  China ’ s GDP per capita will be about USD 8,000 in 2015.  An advantage for auto production and sales in a low level of vehicle fleet in China.  Another advantage in regional difference: coastal areas vs. inland and western regions.

29. 29 Civil Vehicles in Regional Use Region Year GDP per capita Vehicles ’ 000 V/P Passenger Cars ’ 000 C/P Jiangsu200320301317.7 1.78 483.6 0.65 200744653301.0 4.33 1620.3 2.13 Zhejiang200324301358.2 2.98 521.0 1.14 200750003032.7 6.51 1612.1 3.46 National2007310043584 3.3029616.5 2.24 GDP per capita: USD.

30. 30  As for 2008, it is estimated the global fleet at 619.5 million light-duty vehicles, China only accounted for 7%.  Possession ratio of vehicle to population increased from 1.24% in 2000 to 3.3% in 2007.  Possession ratio of passenger cars also increased from 0.67% to 2.4% over the same period.  As for Japan, this ratio is at 49.21%, higher than that of the US (47.52%).

31. 31 Vehicles in Use: International Comparison CountryYearPer capita Vehicles in fleet ’ 000 V/P(%) Passenger Cars ’ 000 C/P(%) China2000840 15761 1.24 8537 0.67 20072500 43584 3.30 29617 2.24 Japan200035420 72653 57.27 62438 49.21 Korea20009010 12040 25.61 8084 17.20 Brazil20003630 28975 17.03 23242 13.66 Germany199925690 44874 54.66 42324 51.56 USA199932260214775 77.07132432 47.52 India1998440 8120 0.81 5056 0.51

32. 32  Will China catch up with Brazil and Korea ’ s level of vehicle in society use?  If China ’ s GDP per capita will be as high as that of the developed economies, can more vehicles be sold out in coming years?

33. 33 5. The Future of China ’ s Automobile Industry  Car companies are concerned about what some of them called “ the most affluent factor ” to auto industry----a strong economy.  It is estimated that the Chinese market is expected to account for some 35 percent of all global auto sales growth during the next decade.

34. 34 Auto Production Growth ’ 000

35. 35  The auto production increased from 2.34 million in 2002 to 10 million in 2008. As for market share, China accounted for 13.41 percent of global vehicles in 2008.  It is reasonably forecasted, that the China ’ s auto production and sales will be around 25 million units in 2020.

36. 36 The Estimation of China ’ s Automobiles 200020072020 GDP per capita (USD)9502,50012,000 Auto Production Vehicles20708888.925000 Passenger cars6074997.818000 China ’ s share of global (%) Vehicles3.5412.3220.00 Passenger cars1.488.5218.28 Global auto production Vehicles Passenger cars 5839.24 4098.79 7217.85 5630.11 124500 95712 Unit: ’ 000.

37. 37 Markets, Markets and Markets  It ’ s going to be much more important to see how Chinese consumers there are thinking about or rethinking their purchases of cars and looking for the next five years or so.  What kind of cars is popular? Large and midsize cars sell well in China. This means that car manufacturers reap larger profits from bigger vehicles that sell in China.

38. 38  GM ’ s joint venture in China will spend $1 billion a year over the next five years to keep up with the explosive growth in China ’ s auto industry.  GM, sold more than one million Cadillas, Buicks and other models there in 2008, a more than 150-fold increase in sales over a decade.  Nissan plans to introduce three new models in China this year.  Can China become the largest auto producer in the world? Some lessons can be learned from the steel production in previous years.

39. 39 The Case of Crude Steel Production Million Tones YearGlobal OutputChina OutputChina/Global (%) 1998 777.33 115.59 14.87 1999 784.55 124.26 15.84 2000 847.67 128.50 15.16 2001 850.27 151.63 17.83 2002 903.93 182.37 20.17 2003 969.74 222.34 22.93 2004 1068.69 282.91 26.47 2005 1146.20 353.24 30.82 2006 1250.00 419.15 33.53 2007 1344.27 489.29 36.40 2008 1329.72 500.49 37.64

40. 40  China ’ s crude steel production increased from 116 million tones in 1998 to 500 million tones in 2008.  China accounted for 37.64 percent of global output in 2008, up from 14.87 percent in 1998.  The estimation of strong demand for autos can be drawn from the growth of per capita production rate over the past decade.

41. 41 Per capita Car Production Rate

42. 42  China ’ s car production rate to population increased from 0.05% in 2000 to 0.38% in 2008.  The per capita production (or sales) rate has been stable, around 3.4-4.3% for the USA in the past three decades, namely, 13 million vehicle sales annually.  What is this rate for Japan and Germany?  Will China reach a similar rate with Japan ’ s?

43. 43 6. Conclusions  China will become the largest auto producer at 12 million vehicles in 2010.  Induced by the market demand, both multinationals and Chinese auto producers will expand their production capacities.  In 2020, the vehicle production will be at 25 million units in China, under the support from high economic growth and income-increase trends.  China ’ s diversified auto production system will be integrated into the global production chain, and regional production mechanism will be consolidated into national unified system, covering all multinationals and homegrown makers.  ……

44. 44 Thank You!