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China's emerging car industry

(BusinessWeek.com)
Updated: 2007-04-13 11:29

Eight auto export manufacturing bases have been established to help automakers expand globally. They includeShanghai, where both GM and VW have joint ventures; the northeastern city of Changchun, headquarters for major automaker FAW;Chongqing(Chang'an Auto); Wuhan (Dong Feng Group); Xiamen (Golden Dragon); Wuhu, (Chery); Taizhou (Geely); andTianjin, where Toyota has a joint venture with FAW.

It isn't just exports that have a promising future. Last year China overtook Japan as the world's number two market for automobiles, with total vehicle sales rising 25% in 2005 to 7.2 million. The number of cars in Shanghai reached the previous 2020 estimate by the beginning of 2005.Beijinghad over 22,000 new car registrations in the first 18 days of 2007, total hit almost 2.9 million. All of these vehicles are clogging the roads and polluting the air, and yet only a tiny fraction of the population is on the road.

Copyrightinfringement has become as endemic in the auto industry as it is throughout China's export economy. There have been multiple suits brought by American and European automakers against Chinese companies - often their own joint-venture partners.

In addition, the hand of the state is ever-present. The US is considering a suit against China at theWTOfor, among other things, subsidizing its auto parts industry.

Regardless of whether the US claims are justified, China has become a major global auto parts supplier and this trade will continue to grow. Of the world's top 100 auto parts suppliers, 70% have a presence in China. There are about 1,200 foreign-funded or jointly-invested parts manufacturers in China holding 50% the market. Among them are brands such as Delphi, Bosch, Visteon and Wanxiang, China's largest maker of auto parts. There are about 5,000 domestic spare parts manufacturers.

Factor in the positive prospects of other auto-related industries - repair, road transportation, insurance, finance and rental - and it becomes clear why the expectations, and the stakes, for this industry have soared so high.