China's Car Industry Needs Sober Minds: Opinion

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Last updated at: (Beijing Time) Thursday, July 17, 2003

China's Car Industry Needs Sober Minds: Opinion

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China's car industry observed its 50th anniversary on Tuesday with unprecedented optimism about its future.

However, turning grand ambition into reality takes more than confidence built on current performance, no matter how remarkable that performance may be.

This is particularly true for the State Development and Reform Commission, which is developing a new policy for the motor manufacturing industry that will determine how Chinese car makers develop.

Almost all the available statistics describe a rosy picture of growth in this booming sector since China joined the World Trade Organization in December 2001.

With an impressive annual growth rate of 38.5 per cent last year, the highest rate of the past decade, China's vehicle output reached 3.25 million units last year and is set to exceed 4 million this year.

As a result, China went from being the world's eighth-largest motor manufacturer in 2001 to fifth last year in terms of the volume produced. There is now quite a good chance that it will advance a step further this year.

The car industry emerged as one of the Chinese economy's five largest industries in terms of sales in the first quarter of this year.

Industrial insiders enthusiastically claimed that the industry could become the economy's largest growth engine.

However, in retrospect, the development of the car industry had never been smooth sailing. Between the 1970s and the 1990s, the industry witnessed both double-digit growth and bitter contractions. After the growth peak between 1991 and 1993, the car sector went into the doldrums for the following four years.

It was not until the country finally sealed its WTO membership after more than a decade of negotiations that the Chinese car market was decisively revitalized.

Though the country has amazed the world with long-term rapid growth over the past two decades, unfavorable policies and market conditions practically left the car sector in hibernation for a long period.

Now, in just the blink of an eye, international auto giants are all swarming into the so-called last world-level car market with their ample capital, sophisticated technology and up-to-date models to seek Chinese partners.

Meanwhile, Chinese car buyers have also responded more actively than both local and foreign car makers had expected.

Chinese people spent 40 per cent more on buying cars last year compared to the previous year, a rate faster than that for any other commodities.

Some Chinese research institutes have even forecast that the market's annual growth rate could still exceed 30 per cent in three years.

It is natural that the increase in profits has encouraged Chinese car makers to multiply their capacity.

For instance, the First Automotive Works Corp, China's flagship car maker, this week unveiled an ambitious plan to increase its annual output from about 400,000 units in 2001 to 2 million vehicles over the next five to eight years.

Given the significance of this car giant, whose establishment 50 years ago also marked the start of the Chinese car industry, the announcement fully demonstrated the overwhelming optimism of Chinese car makers.

It seems that the unexpectedly high growth rate has largely alleviated the authorities' worries over the possible impact of intensifying competition resulting from the country's WTO entry.

Today's robust growth justifies the high expectations of China's car makers. But, on the whole, the half-century history of this industry allows for no complacency.

Instead, it is the right time for both the authorities and enterprises to carefully examine from a long-term perspective the chances and challenges confronting them.

A sober mind appears especially desirable for policy-makers. For this will allow them to come to grips with the underlying obstacles that can sap the dynamics of the industry if not properly addressed.

The Chinese car sector cannot always grow at breakneck speed. Dropping car prices, an inevitable result of fierce competition, will also soon bring an end to car makers being able to rake in handsome profits easily.

Therefore, setting a rational pace for progress will be crucial to the industry's sustainable development in the post-WTO years.

Policy-makers are fairly keen to encourage Chinese car makers to develop.

In a draft policy, the authorities have stipulated that vehicles made by Chinese motor manufacturers who own the intellectual property rights to those vehicles should account for more than 50 per cent of China's vehicle sales by 2010.

Chinese car makers are generally weaker than their foreign rivals in this respect, so such a technology-centred development strategy is now much-needed.

Nonetheless, a competition-oriented environment in the car industry is needed more urgently to accelerate efficiency-oriented reorganization.

To protect the fledgling car industry, China adopted a specific policy for it in 1994 to limit access into the sector.

But the results were disappointing. Competitive Chinese car makers were unable to expand their capacity as poorly managed companies survived through local and industrial protectionism and car buyers were kept at arm's length from the market due to jaw-droppingly high prices and a lack of choice.

China's aggressive fulfilment of its WTO commitments to open up wider to the outside world has brought about a brisk car market in a short period.

While Chinese car makers have capitalized on how foreign competitors have rushed into China to expand their market share, the authorities need to reconsider how to regulate this promising industry.

After all, a 50-year-old industry can no longer be regarded as an infant industry.

The authorities should use the new car-industry policy being drafted to make clear their resolve to get Chinese car makers to stand up on their own in the market.

Technology is undoubtedly a key part of an enterprise's core competitiveness. But, above all, the enterprise must adapt to market rules. (China Daily News)

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