Analysis_of_Chinese_Auto_Industry

Government Policy ECO-FRIENDLY POLICIES Technical challenges arise as some new policies have been proposed considering energy saving and environment protection. The experts forecast that, from 2006 to 2020, the vehicle stock will be increased by 8% every year, which far exceeds china’s domestic oil supply (Fedcars, 2006). It is estimated that 60% of the oil use will rely on imports till 2020. To relieve this prominent energy crisis, China’s government has already published a series of new policies such as ‘Limit standard for automobile fuel consumption’ ,’Fuel oil tax’ and ‘Revenue rewards on acquisition of energy saving autos’ (ibid). Meanwhile, the central government published 'Automotive Industry Promotion Planning' to promote fuel saving automobiles by stating ‘halved the purchase tax on passenger cars to 5 percent for models with engine displacements of less than 1.6 liters’ (CHINA Daily, 2009). For this reason, local auto manufactures will suffer a great deal due to the lag in technology to design energy-saving and eco-friendly vehicles compared with joint-venture corporations (Yu and Yang, 2010). At the same time, Chinese government encourages people to utilize the public transportation and makes more efforts to build new subways. Beijing bans even-and-odd license plates on alternate days and Shanghai charges heavy license fee as well. Owning to these environmental protection policies, private car market is under serious threat (Huang, 2010). LOCAL-PROTECTIONISM POLICY To protect local domestic enterprises, China’s local governments also announce some effective policies to offer all kinds of facility and assistance, such as a large amount of government procurement and preferential loans (Sasuga, 2008). Take Geely as an example, Geely Vision was selected as the specific vehicle of Zhejiang Provincial Intellectual Property Office and became the brand image on behalf of Zhejiang automobiles (Sohu, 2008). However, excessive narrow regional protectionism also damages the pure competitive environment and harms the healthy development of the whole industry. Economic Environment Generally speaking, China is experiencing a rapid economic growth and numerous domestic enterprises are in the best interests of this favorable external environment. According to Yu and Yang (2010), the GDP of China has a consecutive double-digit growth for several years and the disposable personal income also improves significantly. Since the outbreak of the world financial crisis in 2008, the global automobile markets have been severely affected and the demand has undergone a sharp decrease in most of the countries especially United States. However, Chinese automobile industry suffers relatively less than other countries and the vehicle markets recover gradually after the crisis (Yu and Yang, 2009, Appendix 1). INTENSIVE COMPETITION With China’s joining into WTO, the automobile industry has jumped into a rapid growth period, bringing intensive competition from home and abroad. Higher globalization tendency, lower entrance barriers and looser trade policies attract a large amount of foreign auto dealers to enter the appealing Chinese market (OPPAPERS, 2009). Consequently, for domestic automobile enterprises, they must face increasing fierce competition from foreign players especially some world-renowned brands like Toyota and Honda (ibid). What is worse, the threats come from not only outsiders but also insiders, creating an extremely fierce competitive environment for Chinese domestic manufactures. Du (2009) points out that the domestic automobiles have taken up 95% of China’s automobile market, and there are 81 local brands in China, with an average of one new car model every three days (Wu, 2007). This phenomenon can be attributed to an overly positive prediction of Chinese automobile market. Specifically, in the first half, China’s automobile production and sales increase by 48.84% and 47.67%, reaching 9,016,100 and 8,927,300 respectively (Brianna, 2010). However, to some experts, this seems to be a bubble boom and excessive expansion of car enterprises will give rise to the overcapacity in the automobile industry. Furthermore, Brianna (2010) regards cars as durable goods. Once customers lose their passion and be back to a rational consumer demand, overcapacity will occur even though China’s public transport system is in rapid development. All in all, despite that the automobile market of China experiences an ‘apparent’ prosperous period, the domestic auto brands are still under tremendous pressure. As more and more companies scrambling for the booming market, the automobile market of China is getting progressively saturated with lower sales growth (Du, 2009, Appendix 2). CONTINUOUS RMB APPRECIATION RMB appreciation has posed a great challenge to China’s automobile industry. Since the reform of RMB exchange rate in 2005, RMB has approximately appreciated by 5% (CIRN, 2007). Currently, for most Chinese automobile companies, export to overseas market has become profit source and the key to success (ibid). Under such circumstances, the increased currency exchange rate will increase the cost and force them to either raise the sales price or decrease the profit margin in order to remain the original market. Both of the choices will bring significant losses to these firms (Yuan and Zhou, 2009). Infrastructure With the rapid development of society, Chinese government takes effective measures to improve the infrastructure in order to create better living and business environment for multitudinous domestic enterprises, however, challenges still exist. The highway in China has been built as long as 60,300 kilometers till 2008, constituting a countrywide highway network (Yang & Yu, 2010). Benefiting from this convenient transportation, varieties of vehicles enter people’s daily life and are utilized by more and more residents. Nonetheless, incomplete traffic system still causes unavoidable obstruction for the whole automobile dealers. A serious problem, traffic congestion, becomes more and more severe in contemporary society, especially in such metropolises as Beijing, Shanghai, and Shenzhen (Zhao & Gao, 2009). In addition, the gas stations and parking spaces are not sufficient yet, negatively influencing the convenience of traffic (ibid). As a result, most consumers always feel anxious, frustrated and fretful, leading a decrease in purchasers’ desire to a large extent. Technology Since the economic regime reconstruction in the 1970s, most overseas-funded enterprises have swarmed into the China’s automobile market with advanced technology (Tian, 2007). Acquiring technology and management philosophy from progressive partners, most domestic brands improve their technology level, which exerts a positive effect on the whole industry (Sasuga, 2008). However, the quality of most low-end vehicles produced by domestic companies does not meet the requirements posed by many Chinese consumers and safety issues are always seriously questioned (Marukawa, 2009). For instance, Geely is criticized for the poor feedbacks from its consumers on the performance test carried by the China New Car Assessment Program (ibid). In practice, as the consumers in China become increasingly conscious about the significance of safety, the inferior quality will pose a negative effect on the sales of automobiles.