Auto Industry Faces Challenges

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Last updated at: (Beijing Time) Thursday, November 22, 2001

Auto Industry Faces Challenges

Chinese automobile manufacturers still dominate the domestic market, which has seen a boom over the last decade, but the country's automakers can expect to face both still face both challenges and opportunities, according to a report by the People's Bank of China.

In the 1990s, the Chinese automobile industry witnessed two remarkable mileposts in growth - production surpassed 1 million units in 1992 and 2 million in 2000.

In the first nine months of this year, production in auto industry chalked up a 12.9 per cent growth over the same period of last year. And production for the year is expected to reach 2.35 million units, a 14 to 15 per cent increase over production in 2000.

Currently Chinese automobiles hold more than 95 per cent of the domestic market, said the report from the central bank.

Several large-scale auto makers have come into being in China, such as First Automotive Works in Jilin Province, Dongfeng Motor Corporation in Sichuan Province and Shanghai Automotive.

On the whole, domestically-made trucks can meet the demand of Chinese market.

Limited by current income levels, consumers are more interested in low-end autos, which are mostly produced by Chinese enterprises. Medium- and low-priced automobiles constitute 80 per cent of total sales.

But the report pinpoints problems impeding further development of the auto industry. One is the restrictive policies that limit automobile consumption. Many people hesitate to buy a car because of the heavy fees and troublesome procedures.

The poor after-sales services and the lack of model variety also discourage consumers.

Local protectionism also hinders the auto industry's development. Some local governments prohibit the entry of cars produced in other regions.

Another problem lies in auto makers' weakness in technological innovation.

Manufacture of auto parts also needs to be developed in China. Parts production in the country is still backward, and has no possibility of competing in the international market.

There are no key players in the parts market, nor is there a rational division of products among parts producers.

Another challenge confronting the country's auto industry is small production scale. By the end of 1999, there were 2,391 manufacturers in the domestic auto industry, including auto producers, parts producers and engine producers. Among them, there were 118 producers who could make complete units.

Scales of economy are obviously out of reach for those small manufacturers competing viciously in the share of the market left by the big three.

It is borne out by the history of many countries that there is a phase in which the national economy is mainly pushed forward by the popularization of family autos - this occurs after the per capita income reaches a certain level, said the report.

In this phase, the auto service sector also has the opportunity to rocket forward in its growth. Experience in developed countries shows that one unit of growth in the auto industry will bring about 0.65 units of growth in upstream industries and 2.63 units of growth in downstream industries such as services.

The Chinese per capita GDP was 7,078 yuan (US$852) in 2000, which is already at the level where families can afford cars. Families in richer regions can earn much more than the average; therefore, the demand peak for family cars is possibly at hand in certain parts of the country.

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