Price Reduction, Reagent on China's Auto Market: Analysis

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Last updated at: (Beijing Time) Friday, January 18, 2002

Price Reduction, Reagent on China's Auto Market: Analysis

The reduction in the price of cars since China honored its commitments to slash car import tariffs from January 1 have shown the huge potential of China's expanding automobile market.
Experts predicted three rounds of price cuts in 2002 and believe that Chinese people's passion for cars will be further fired.

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Sales of Xiali Ballooned After Price Cut

Within 24 hours of Tianjin Automobile Industry Corp. (TAIC) cutting Xiali economy car prices by around 20 percent, the company's daily sales ballooned to nine times higher than usual.

A total of 561 cars were sold for cash and 636 cars were purchased by time payments. With some car yards running out of cars in Chengdu, Yunnan and Beijing, the TAIC had to make an emergency delivery from its headquarters in Tianjin.

Qian Pingfan, an expert with the Development Research Center (DRC) under the State Council, said, "this shows that the Chinese automobile market's will expand rapidly with free competition under gradually opening up."

Expectation for Cheaper Cars After WTO Accession

Kong Lijuan, a dealer with the TAIC, likened the previously sluggish Chinese automobile market to a sleeping volcano awaiting the right time to release its momentum.

"Cashing in on most people's expectations that there would be cheaper cars after China's entry to the World Trade Organization (WTO), TAIC's price cuts are an assertive move and have finally spurred reluctant consumers to purchase," Kong said.

Price Reduction to Maintain Market Shares

Fearing a loss in market shares, a number of domestic auto makers followed TAIC's suit by slashing their car prices. They include the Dongfeng Citroen Automobile Co., Ltd. in Hubei Province and the Ningbo-based Geely which is already known for producing China's cheapest car, usually priced between 30,000 and 60,000 yuan, in China.

Three Rounds of Price Cuts Predicted in 2002

Analysts said that three rounds of price cuts may be expected this year as all China's car-makers want a higher share of the market before foreign car-makers swarm into China and build up their own sales.

Describing current price reductions as a major way for car-makers to clean out excess stock, analysts said that the next two price cuts may take place after imported vehicles enjoying lowered tariffs come into market in March and when there are massive price cuts by auto groups aiming to crush small competitors.

On January 1 this year, the tariff for cars below 3L was lowered from 70 percent to 43.8 percent and for cars above 3L, from 80 percent to 50.7 percent.

Auto Market Demand to See Blaze

Although a lot of Chinese are still waiting for a further price decline, Qian believes that China's auto market demand cannot be stopped.

Domestic Demand

Since the Chinese auto credit market is opening up to non-banking foreign institutions in line with the country's WTO commitments, Chinese people's passion for cars will be further fired, the secretary-general of the Shanghai Banking Association Yin Jiafa said.

Convenient Credit Services

"They will be able to get more varied and convenient credit services," Yin said.

In 2001, The Shanghai Branch of China's Industrial and Commercial Bank alone granted loans worth 2.16 billion Yuan (about US$253 million) to help local people purchase 18,000 automobiles.

Improvement of Traffic Conditions

The country's traffic conditions have undergone a gigantic improvement which has greatly enhanced people's interest in auto purchases.

Last year, China spent over 100 billion yuan (around US$12 billion) to improve road construction and traffic management in 729 cities. The average driving speed of automobiles in 35 metropolises has risen to 29.3 kilometer per hour.

A report newly released by the DRC predicted that by 2010, China will have 71.67 million automobiles and have an annual growth rate of 15.2 percent. Of those, sedans will hit 20.7 million and grow 16.3 percent annually.

Purchasing Strength

A survey conducted by the America-based General Motor reveals that seven million Chinese households can now afford to buy their own cars. By 2005, the proportion will rise to 42 million. By 2010, China will become the world's third largest automobile market after America and Japan.

Another survey conducted in Beijing, Guangzhou and Shanghai shows that 70 percent of families plan to buy cars for home use within the next five to 10 years.

Two-Win in Price Reduction

Qian said that the current price reduction of domestic automobiles is a good thing for both consumers and producers.

Small businesses and those producing auto fittings may not survive the price war, but they could be bought up by bigger businesses and help establish the country's heavyweight auto groups.

Sui Xinhua, a car dealer selling cars from TAIC and foreign auto companies in Japan and the United States, says that price cuts are necessary but are not the only way to jump-start the huge Chinese auto market.

"To bring the market demand to its fullest potential, auto producers have to give more attention to the vehicles' quality, as consumers are increasingly choosy about an automobiles' technology, comfort, performance and environmental safety," Sui said.

Price Cut of Some Home-made Autos (10,000 yuan)

Brand Technical Index Ori. Price Cur. Price
Disc.
(%)

Red Flag Century Star Length/width/height(mm):4890/1814/1422 MS:175km/h, Oil consumption/km 7.5L, Engine:1998mL
24
21.8
9.1

PASSAT B5
Length/width/height (mm):4794/1736/1490 Highest Speed 195km/h
Oil consumption: no more than 8.7l; Engine1781mL
24.5
22.5
8.1

Xiali TJ7101 Length/width/height(mm)3995/1615/1385 Highest Speed137km/h, Oil Consumption/km 5l, Engine1000mL
4.89
3.98
18.6

Xiali 2000 Length/width/height(mm)4145/1660/1510 Highest Speed>170km/h Engine1342mL
11.998
9.7
19.2

Lingyang SC7101 /
11.27
9.88
12.3

Sail Length/width/height(mm)4026/1608/1402 Highest Speed 170km/h;
Consumption:5.3/5.7l; Engine 1600mL
12.5
11.5
8

MEIRI Length/width/height(mm)3670/1620/1386 Highest Speed 145km/h; Engine 1342mL
5.99
5.55
7.3

Jili Length/width/height(mm)3650/1635/1410 Highest Speed��130km/h;
Consumption: no more than 5.5L, Engine993mL
4.49
3.99
11.1

Cetron-Fukang New Tide Length/width/height(mm)4071/1702/1425 Highest Speed 180km/h
Oil Consumption/km 6.5l Engine:1600mL
14.1
13.3
5.7

Jetta CI Length/width/height(mm)4385/1674/1415 Highest Speed 180km/h;
Oil Consumption/km 6.3L Engine1600mL
11.7
9.98
14.7

Mazida (Hainan)
Length/width/height(mm)4215/1675/1375 Highest Speed 156km/h
Consumption/km 4.8l; Engine1342mL
12.6
11.6
7.9

Transit /
24.8
22.88
7.7

Alto Happy Prince
Length/width/height(mm)3200/1405/1440 Engine: 796mL
5.39
4.78
11.3

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