China: a thriving auto market
China is the second largest auto market in the world, with sales volume for 2008 reaching 9.38 million units. Of the 6.74 million passenger cars manufactured in 2008, 6.76 million were sold, representing 5.95% and 7.27% increase over 2007, respectively. (Source: CAAM). It is expected that the production of automobiles in China will exceed 12 million units in 2009. (Source: Hong Kong Trade Development Council). Auto sales in China surged to 9.66 million in the first nine months of 2009, up 34% from the same period last year, despite adverse business conditions emanated from the global economic slowdown. The total output value for auto parts in Chinese market is aimed at $185.7 billion by 2010.
The increasing number of automobile sales will create an increasing demand for our products. We anticipate that the growth of the auto industry in China will mainly be driven by the following factors:
(¢ñ) Rising GDP Per Capita.
The PRC’s GDP per capita in 2008 was $3266.8, a 32.7% increase as compared to that in 2007, and has surpassed the critical vehicle ownership level of $2,000. GDP per capita in more developed areas reached over $10,000, such as Shanghai ($10,529), Shenzhen ($12,932), and Hangzhou ($10,416). The rising GDP per capita indicates the increase of purchasing power, which, combined with a fall in automobile prices, may lead to higher automobile ownership.
(¢ò) Huge population but low saturation level in China.
Despite the fact that private vehicle ownership has continually increased over the past 10 years, the average automobile ownership in China is 33 per 1000 inhabitants, which is low compared to the world average of about 120 per 1000. (Source: China Automotive Industry Yearbook). The PRC National Commerce Department has predicted that the auto ownership in China will increase to 40 per 1000 inhabitants by 2010.
(¢ó) Dramatic increase of the urbanization rate.
According to the National Bureau of Statistics of China, the urbanization rate in China grew from 43% in 2003 to 45.68% in 2008, an increase of 6.2%. By the end of 2008, China has 655 cities, representing annual addition of 11 cities and growth rate of 36.7% since 1991. Over 20 cities have generated US$30 billion in GDP in 2008, with Shanghai, Beijing, and Shenzhen ranking the top. The extraordinary urbanization rate in China will lead to a rising demand for car ownership.
(¢ô) Growth of highway infrastructure.
The statistics of the National Bureau of Statistics of China shows that the total length of expressways and class I-IV highways in China increased from 1.9 million km in 2005 to 3.7 million km in 2008, a growth of 94.7%. The growth of highway infrastructure will benefit the Chinese auto industry.
(¢õ) Favorable governmental policies.
The Chinese government adopted a number of legislative measures to facilitate the development of the Chinese automotive industry.
a. Fuel tax reform.
The Chinese government increases the gasoline tax from 0.2 yuan ($0.03) to 1 yuan ($0.15) per liter, and diesel tax from 0.1 yuan ($0.015) to 0.8 yuan ($0.128) per liter. Six categories of tolls for road maintenance and management will be scrapped.
b. Purchase tax reduction for small emission cars.
The government halved purchase tax on vehicles with engines of 1.6 liters or less, which accounted for 70% of overall sales. Purchase tax reduction directly stimulates consumers to buy small engine automobiles.
c. Subsidy policy for vehicle purchase in rural areas.
This stimulus policy allocated US$ 730 million to provide one-off allowances farmers to upgrade their three-wheeled vehicles and low-speed trucks to mini-trucks, or purchase new mini-vans under 1.3 liters. Chinese farmers and other rural residents who buy a new minivan or light truck can get a subsidy equal to 10 percent of the purchase price, up to a maximum of $735.
d. Motorcycle ban in coastal cities.
Most developed cities in China have banned motorcycles from their downtown areas to curb pollution and improve traffic condition. With such restriction, part of the former motorcycle owners will shift to economy cars as a substitute of transportation.
