China is now the second largest automotive market in the world, trailing only the United States and Europe. In 2008, its estimated that ten million new motor vehicles in China will be sold. As of November 2007, China had already produced 8.8 million vehicles, a 33.33% rise over 2006’s figures. There are approximately 100 vehicle OEMs, with 40 producing passenger vehicles. Major domestic firms include the China First Automobile Group Corp. (FAW), Dongfeng Motor Corp. (DMC) and Shanghai Automotive Industry (Group) Corp. (SAIC).
Alternative Fuel Vehicles
China encourages the development of clean and fuel efficient vehicles in an effort to sustain continued growth of the country’s automobile industry. By the end of 2007, China plans to reduce the average fuel consumption per 100 km for all types of vehicles by 10%. The proportion of vehicles burning alternative fuel will be increased to help optimize the country’s energy consumption. Priority will be given to facilitating the research and development of electric and hybrid vehicles as well as alternative fuel vehicles, especially CNG/LNG. Major cities like Beijing and Shanghai already require Euro III emission standards.
China has about 6000 automotive enterprises, which are scattered in five sectors: motor vehicle manufacturing, vehicle refitting, motorcycle production, auto engine production, and auto parts manufacturing. All tiers of the industry are being driven by the booming sales of the OEM sector. Nearly 80% of the revenue for the auto parts and accessories market is through new vehicle sales. However, revenue from after market is increasing rapidly.
Shanghai and its surrounding provinces (Zhejiang, Jiangsu, and Anhui) are the centers for component manufacturing, representing around 44% of national production. Shanghai is home to Shanghai General Motors, Delphi, Visteon, and other notable American automotive companies and, as such, provides a good starting point for U.S. automotive component exporters to begin to explore the Chinese market. Other major automotive centers in China include Guangzhou (South China), Chongqing (West China), and Changchun (North China).
China’s fulfillment of WTO requirements has helped drive new vehicle sales. As of July 1, 2006, China fulfilled its WTO requirements by lowering import tariffs for auto parts and accessories to 10% and import tariffs for new automobiles to 25%.
Used Motor Vehicles and Used/Refurbished Auto Parts
Although there are case-by-case exceptions for antiques and diplomats, it is currently illegal to import used motor vehicles into China. Refurbished heavy construction equipment can be imported with a special permit. Used and refurbished auto parts are not allowed to be imported into China.
Automotive After-Sales Products and Services
Although improvements have been made in this field in the past decade, China's after-sales products and services still lag far behind those of developed countries. However, WTO commitments have brought about significant changes in the after-sale market. China’s aftercare market now faces the following challenges:
The Chinese Government is in the midst of a massive upgrade of its transportation infrastructure. Until recently, China’s economy was able to continue to grow despite deficiencies in infrastructure development. This is no longer the case, and the Chinese Government realizes that in order to keep their economy moving forward, they need an efficient system in place to move goods and people across this 9.326 billion sq. km. land mass. According to World Bank statistics, goods lost due to poor or obsolete transportation infrastructure amounted to one percent of China's GDP as recently as the most current survey (mid 1990's). Logistic costs account for 20% of a products price in China, compared to 10% in the U.S.
Ports are being improved for greater use of China’s waterways, and airports are being improved across the country. All of these projects bring opportunities to U.S. construction equipment, engineering, and electronics and safety devices companies, especially for projects funded by the World Bank, Asian Development Bank, OECF, and similar multilateral lending agencies that use transparent bidding procedures.
In the past few years, China has been rapidly developing its highway system. The investment for highway construction has increased enormously from 2000 owing to increased government attention. Improving infrastructure has facilitated the increased use of automobiles. The government has added about 3,000 km of expressway a year to the existing network. China has already built a 30,000 km network of highways, second only to the U.S. in total kilometers.
US$4.25 billion was invested in Beijing’s infrastructure in 2004, and another US$22 billion will be invested before the 2008 Olympics to improve Beijing’s traffic congestion issues.
China has sixteen major shipping ports with a capacity of over 50 million tons per year. Combined China’s total shipping capacity is in excess of 2,890 million tons. By 2010, 35% of the world’s shipping is expected to originate from China.
The Port of Shanghai is presently undergoing significant upgrades. Shanghai Model Port Alliance is responsible for many of the upgrades that are expected to make Shanghai’s port more automated, minimizing the loss of goods and time while helping Customs collect more accurate tariffs. If the Shanghai project is successful, there is interest in replicating the process in other Chinese ports.
Passenger rail traffic has priority over freight on the many single-track rail lines across China, extending trips which should last a few days to two weeks or more, and limiting investment interests in all but a few coastal regions. Rail tracks are now being doubled to alleviate freight train conflicts.
U.S. Position in the Market
U.S. firms' advanced technology and experience make them very competitive for projects using a transparent bidding system, such as those funded by the World Bank, Asian Development Bank or other multilateral funding sources. The massive upgrade of the transportation infrastructure currently being carried out depends a great deal upon available financing. In most cases, locally-financed projects use local construction products and services. Due to a lack of government funds, BOT (Build, Operate, Transfer) project financing is a possibility for U.S. firms, though these may not be viable business opportunities. Container security equipment should have good prospects in the near future.
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National Development and Reform Commission (NDRC)
Tel. & Fax: (86-10) 6319-2525
China Association of Automobile Manufacturers (CAAM)
Foreign Affairs Office
Tel: (86-10) 6859-4941
Fax: (86-10) 6959-5243
China Automotive Technology and Research Center
Tel: (86-10) 6328-3523
Fax: (86-10) 6346-2256
Ministry of Communications (MOC)
Tel: (86-10) 6529-2114
Department of Highways
Tel: (86-10) 6529-2737
Fax: (86-10) 6529-2766
Ministry of Railroads (MOR)
International Cooperation Department
Tel: (86-10) 5184-2855
Fax: (86-10) 5187-9914
The U.S. Commercial Service offers a broad array of market entry services to U.S. companies in the transportation industry. Please refer to the following relevant contacts for additional information on how we can help you expand your business in China.
Lena Yang (Ports & Marine, Automotive)
Diana Liu (Logistic)
Shiyang Cui (Ports & Marine, Rail, Logistic)
Ling Chen (Automotive)
Yang Liu(Ports & Marine,Rail, Logistic)
Dongmei Sun (Automotive)