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ASIA: "China releases new outbound investment rules" report

ASIA: "China releases new outbound investment rules" report. 11-page report by DLA Piper.

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back to index backASIAtalk September,  2005


China. An Automotive Industry on the Verge

To glimpse the future of the automotive industry, look to China.

The size and rapid growth of China's automotive market means that it will determine success or failure for manufacturers globally. As a result, manufacturers need to develop a profound understanding of the Chinese market in order to craft strategies that will drive high performance.

China is emerging as a key player on both the demand and supply sides of the automotive market.

Accenture analysis suggests that sales growth there will exceed the rest of the world for at least the next decade, meaning that any original equipment manufacturer (OEM) wanting to improve its global performance must do well in this market. Sales growth peaked in 2003, when passenger car sales increased by 65 percent year-on-year. While government action has cooled the temperature for the moment, analysts expect demand to begin to rise again by 2007.

China is also beginning to become an exporter of cars, with an eventual target of exporting 40 percent of production. Established OEMs also need to become suppliers to Chinese manufacturers if they are to remain leaders.

The Chinese market poses some particular challenges for OEMs.

In the first place, Chinese buyers are thoroughly Western in their determination to pay the cheapest price possible. This is however coupled with a marked brand disloyalty: they are three times less loyal than their Western counterparts. Rather than buying the brand, Chinese consumers buy on model, tangible features and, of course, price. Chinese margins, currently among the highest in the world, will reduce in response to sustained price pressure.

Another challenge is pending Chinese government tax legislation that will favor local manufacturers. OEMs will need to manufacture, rather than just assemble, in China.

Accenture analysis shows that in the battle for China's demand market, the clear winners are Japanese and Korean OEMs, with Chinese OEMs growing steadily. This shift in the balance of power is part of a decades-long trend which is seeing Asian OEMs continue to gobble up global market share at the expense of Western OEMs.

Whether exporting or importing, OEMs wishing to succeed in the Chinese market will require a robust local sourcing platform.

Proposed government regulations will require specific components to be produced in China, and are likely to mandate that 40 percent of cars sold will have to have been developed locally as well. China's existing crop of local manufacturers can lack both skills and financing. OEMs intent on seeking high performance will have the challenge of finding the right local partners to support their endeavors. Only when they do so will OEMs be poised to leverage fully their investment in China, serving a growing market and also building a base for the exporting of cars and parts.

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Source: Accenture -
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