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            This study explores the current automotive industry in China. It analyzes the different macro and micro-environmental factors which influence or affect the industry – its success and improvement and possible risks that are associated with the different opportunities which the industry offers towards its stakeholders. The author used PESTLE analysis in order to analyze the different political, economic, social, technological, legal and environmental factors which affect the overall industry. On the other hand, the Porter’s Five Forces analysis shows the analysis of openness or level of difficulty in entering the industry. Last, the Key Success Factors enables to show the analysis of the competitive positioning of the main competitors in the industry.

1.0 Introduction

            This chapter will describe what to expect in this paper. It will tackle regarding background information and knowledge about the automobile industry in China. In addition, it will also deal with information related with the issues and problems related in the industry, at the same time, present the problems, questions and objectives that the researcher attempt to answer.

1.1 Background and Overview

1.1.1 China’s Growing Economy

            Currently, the world has seen one of the most, if not the most, fastest economic growths in the history – the economic development of China. In two decades alone, from 1980 to 1999, the country had enabled to record a GDP growth rate of 10.4% yearly and an average growth of 8.3% in GNP per capita from 1985 – 1995. Even though, during this time, the country is still considered as low-income developing country, the estimated per capita purchasing parity (PPP) was already US$3,550 in 1999, which is at the same level with the lower-middle-income economies. With this, during those time period, the automotive industry had recorded 12.7% growth rate annually (The World Bank, 1997). In addition, the study of Morison (2009) showed that from 1979 to 2005, China had recorded an average annual rate of 9.6% in GDP, which enabled China, within the span of 30 years to be considered by economists as one of the most successful economic stories in the contemporary world (see appendix A).

            Further improvement in the economic condition of China was because of introduction of Eleventh Five-Year Plan (2006 – 2010) by the Tenth National People’s Congress of the Fourth Plenary Session of China  (Fan, 2006), this has been strengthen by taking advantage of foreign investments  (Tong, 2010). As a result of this plan, China recorded a total of 11.4% growth in GDP in 2006 and 2007 – a 13-year high, which helped to achieved RMB 24.66 trillion (US$3.24). This enabled China to be the 4th largest economy in the world (see appendix B). In 2008/2009 China take over Germany, which made the country as the 3rd largest economy in the world. According to the report of National Bureau of Statistics (NBS) in 2009, the GDP of China had increased by 8.7% which reached 33.53 Yuan (about US$4.91 trillion). As a result, China is standing very close to Japan – second largest economy, next to the US  (Tong, 2010).

            The said growing economic condition of China is the primary reason why many multinational companies from different industries are establishing their presence in the promising market, as well as the potential of the largest market, which is very helpful in successful expansion. One of which is the industry of automobile, which is considered as one of the largest industry in the country, and one of the pillars in the economy.

1.1.2 The Chinese Automotive Industry

            The automobile industry of China materialize in 1953, however, the production was trivial until the reform of the economy in 1978. The industrial development of automobile industry in China can be classified into three vital periods: (a) 1953 – 1978, (2) 1978 – 1993 and (3) 1994 – present. From 1953 to 1978, 23 small-sized carmakers and 166 producers of car parts were established under the central planning economic system, however, there were only 149,000 vans and 2,640 sedans manufactured in 1978. This has improved between 1979 – 1994 under the national 5-years plan of economic development (1986 and 1991), in which automobile industry was considered as important pillar industry. Through this year 560,000 cars were produced in 1990. In addition, during those times, the automobile import tariff was between 100% and 220% in order to prevent competition from foreign car manufacturers. In 1984, when the government saw that the local manufacturers can already compete with the foreign manufacturers, foreign investments are allowed by equity stake of 50%. Between 1984 and 1994, with the capital injections and modern technology, the production of automobiles had increased to 250,300 sedans (Tian, 2007) (see Appendix C).

            In 2003, the study of Data Monitor (2004) showed that the Chinese automobile industry had reached a value of $23.91 billion, which shows a growth with compound annual growth rate (CAGR) of 14.2% in 1999 to 2003.The said number is higher than the entire Asia-Pacific, which lead to the regional market share of China to increase by 5.9% over the same period of time, which account to 16.7% of the entire automotive market of Asia-Pacific.

Table  SEQ Table \* ARABIC 1 China Automobile Market Value: $ Billion (1999 - 2003)


Figure  SEQ Figure \* ARABIC 1 China Automobile Market Value: $ Billion (1999 - 2003)

            In 2006, China surpassed Japan as the second largest consumer of cars in the world, after US. A total of 25.1% were recorded in terms of increase in sales year-on-year (yoy) to 7.2 million units. Furthermore, in the same year, China also overtook the position of Germany as the 3rd largest maker and manufacturer of cars in the world, after US and Japan, with a total of 27.6% increase yoy to 7.3 million units (China Knowledge, 2010). However, in 2009, China took over the place of Japan as the top producer of cars with 13.79 million units yearly. Japan recorded decline its production to 7,934,516 units, which constitutes to 31.5%. Figure 2 shows the increase in production and sales in automobile industry in China from 19963 to 2006.


Figure  SEQ Figure \* ARABIC 2 Production and Sales Growth in Automobile Industry in China


Source:  (China Automotive Technology and Research Center, 1996 - 2005)

            According to the report of Facts and Details (2010), in 2007 a total of 8.5 million vehicles (5.4 million cars, minivans and SUVs and 3 million commercial vehicles) were sold. Economists stated that until 2015, sales in automobile industry is expected to grow by 1 million annually. In 2009, there were 52 foreign and local car manufacturers in China, which include: Shanghai GM, Shanghai Volkswagen, FAW Volkswagen, Chery, Beijing Hyundai, Tianjin FAW Toyota, Tianjin FAW Xiali Automotive, Geely Automotive, Guangzhou Honda, Dongfeng Peugeot Citreon. All of these top 10 makers account for about 70% of the entire automotive sales (Facts and Details 2010). The long-term growth promise of the automobile industry of China is huge, and there are different important and strong factors which will help to drive strong demand for cars in the next years. Even though the economic growth had slowed in 2009 due to the falling demands of the world for exports of China, incomes in the country still rise in rapid manner, specifically in cities. In addition, car ownership is becoming more and more affordable for a great percent of the population. In addition, the government of China is also focusing on improving its automotive industry, which is considered as the pillar industry in the country.

            According to the report of The Economist Intelligence Unit Limited (2010) estimated that China will still dominate the world in terms of new passenger-car registration from 2011 to 2014. Table 2 shows the international comparison of new passenger-car registration.

Table  SEQ Table \* ARABIC 2 New Passenger-Car Registration, International Comparison ('000)
































Source:  (The Economist Intelligence Unit Limited, 2010)


1.2 Problem Statement

            China is considered as the most promising and potential market in the world. This is because of the continuous growth on its economic and financial condition, which also boost the living standard, income and financial capabilities of individuals in the country, which is advantageous for multinational companies to expand their market, by offering their improved or new product towards a larger market, which will eventually lead to higher sales and profits. However, it is also important to consider that China, in spite of many benefits and advantages, its market can offer, there are also countless risks and threats that foreign companies will be facing upon entering the market. This is because of the difference of the country in terms of culture, tradition and overall structure of the society, which affect the perspectives, perceptions and behaviors of the consumers, at the same time, affect how business operates. Therefore, it is important to focus on the different competitive forces in the automobile industry in Mainland, China in order to come up with the different strategic moves and techniques, which will help to successfully enter the Chinese market, and take advantage of the opportunities that the large market can offer. This will help in order to overcome different risks and threats that can be encountered in the market and industry.

1.3 Aims and Objectives

            The main aim of the study is to analyze and investigate the different competitive forces which affect the automobile industry in Mainland, China. In line with this, the following are the specific objectives:

  • To investigate the current condition of the automobile industry in China;
  • To analyze the different macro- and micro-environmental factors which affect the performance of automobile industry in China;
  • To examine the influence of different stakeholders towards the automobile industry in China; and
  • To study the different factors which influence enters in the automobile industry in China.

1.4 Scope, Background and Significance of the Study

China automobile industry has been rapidly developing since 2000.  In 2009, China has surpassed the United States to become the world’s largest automobile market in the world. While car sales around the globe were recording record drops because of the global economic crisis, auto sales in China soared 44% to 13.5 million units in 2009.  China’s economy has not been affected too much during the financial turmoil in 2008. The consultancy McKinsey & Company estimates that China's car market will grow tenfold between 2005 and 2030. The report intends to provide in-depth insights into the Chinese automobile industry sector by providing analyses with Porter's 5 Forces model, PESTEL analysis, and other relevant analytical tools.

It will give detailed research and analysis of the current and future market trends, and developments on the growing Chinese automobile industry, market players and its various segments including passenger vehicle, commercial vehicle, alternative fuel vehicle and auto component industry in China.  The results from this in-depth analysis of the complex industry environment shall help to evaluate further investment and development in the Chinese automobile industry.

















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