China`s ever expanding auto industry seems to show no sign of slowing down in the foreseeable future. Official statistics show a potential for the industry to maintain a high growth of 15-20% in annual production value during 2007-2008, following the phenomenal 27.5% growth in 2006. China is now the world`s third largest car producer, turning out 7.28 million units of cars in 2006.

Automechanika Shanghai 2007, a benchmark auto show held in China last December, saw an increase of over 60% in exhibitors who used an exhibition area more than twice the size from the previous year`s. The event organizer, Messe Frankfurt GmbH, confidently predicted that the Shanghai auto show would soon surpass those in North America as the largest global show related to the automotive sector.

China`s auto market has been growing along with a proportional increase in the nation`s industrial production fueled by rising investments made by local and foreign companies. One of the most recent remarkable investment projects is the joint venture proposed by the Zhejiang Zhongyu Holding Group and its Taiwanese partner Yulon Motor that is scheduled to produce at least 50,000 units of sedans, SUVs, and MPVs under their own brands in 2009.



Yulon Motor, together with its affiliate China Motors, is one of the most active foreign auto groups in China. Their China investments began in 1996 as China Motors teamed up with Fujian Provincial Auto Group in founding the Southeast Motor in the southeastern province of China. Last October, they collaborated again with the American DaimlerChrysler group to set up another auto production line to produce high-end Viano vans as well as Vitro and Sprinter passenger cars. To be located in the vicinity of Southeast Motor, the new auto plant will be supported by the same satellite auto parts manufacturers under their neighbor affiliates under the same group.

Yulon Motor itself runs two auto workshops with its local Chinese partners in Guangzhou. Currently, the group`s China-based production lines cluster in the area south of the Yangtze River, but target the whole China market and beyond. Southeast Motor is one of the leading exporters in China`s auto industry. It had just created a new outlet in Mexico last year, adding to its existing overseas markets in the Middle East and Southeast Asia.

Dongfeng Automotive, another Chinese automaker in northern China, is in talks with Swedish Volvo to set up another truck production line, in addition to the current ones run under the partnership with French Renault.

SAIC Chery Automobile Co. has chosen Italian Fiat as its new partner while discussing the possibility of running a new auto plant in Anhui Province of central China, targeting an annual production of 175,000 compact passenger cars after going online in 2009. The government-backed automaker recently acquired a massive 4,000 acres of industrial land in central China which will be used as the manufacturing base for the group`s expansion in the future to aim to raise its current annual production of 700,000 cars over one million units or even more within a couple of years.

Meanwhile, SAIC Chery is also making moves to convert its current image as a low-priced car supplier to a high quality car provider after suffering a setback last fall in Russia where a car magazine asked it to withdraw all its poor quality cars out of the Russian market. SAIC Chery, which was regarded as pursuing fast growth at the expense of quality in the past years, is in a critical, transition period to upgrade itself in the following years.

Thriving auto exports

Despite SAIC Chery`s embarrassing experience in Russia, China actually has been seeing rapid growths of its car sales in its northern neighbor. Since 2005, Russia has become the largest foreign market for China-made cars since 2005 when it purchased 35,000 units of cars (worth US$350 million or so), from its southern neighbor, nearly triple from that of the previous year. The growing popularity of China-made cars basked Chinese exhibitors under a rosy glow at an international auto show in Moscow last year.

In addition to the northbound expedition, China`s automakers are also targeting the new markets in Africa where it`s reported that brand new China-made cars are less expensive than used cars shipped from European countries and Japan. A new China-made RV (recreational vehicle), for example, is sold for around US$32,000, compared to a used Toyota RV at US$40,000. China-made cars are becoming popular in Africa because it makes driving new cars affordable to the masses.

In Africa, according to the Wall Street Journal, countries vary widely in per-capita purchasing power. South Africa, the largest economy in Africa, spends US$10 billion for car imports annually. Senegal and other poorer countries may each spend only US$160 million per year. China started to ship cars to Senegal in 2003, with an annual shipment growing from US$434,000 in the beginning to the current US$7.9 million.

Booming AM market

China is also seeing booming car sales in the domestic market where annual sales grew to 7.21 million units in 2006, only trailing that of the U.S. It would hit another new high in 2007 as car sales during the first three quarters had grown to 6.54 million units, up 24.46% from the same period of the previous year.

The privately-owned cars in China, as the official statistics indicated, numbered around 53 million in mid-2007, and would continue to grow to top 70 million by 2010. The vibrant Chinese auto market has created great potential for the aftermarket sales of auto parts on the domestic market. In China, most auto parts manufacturers primarily make products for exports or to fill orders from local carmakers, while they are now paying more attention to the domestic AM segment.

Their optimism towards the market is driven by two major factors: first, the growing economy will allow Chinese consumers to demand higher quality auto parts for their cars; secondly, the rising car insurance market in China would contribute more sales opportunities for non-OEM auto parts makers.

Guangzhou announced its one-millionth car owner last August, becoming the fourth city in China to have one million car owners, following Beijing, Shanghai, and Shengzhen. In Guangzhou, around one out of every ten residents owns a car. According to international standards, a city enters a period of rapid growth in car ownership once its annual GDP per capita exceeds US$5,000. In China, there are several other cities with the potential to reach such level.

China`s current AM market is somewhat chaotic as the market is traditionally dominated by poor quality parts suppliers without a rational pricing system. A rising AM market would create more business opportunities and encourage participation of those auto parts makers which used to focus on export.

The Tong Yang Group, for example, built a new bumper production line by the end of last year, with an annual productivity of 624,000 units, plus a 10,000-ping (one ping is about 36 square feet) warehouse specially to serve the AM market in China. Meanwhile, the group has taken steps to explore the AM market in China and expects to see an annual growth of 14.57% in sales during 2007. Tong Yang, which is now purportedly the largest plastic auto parts supplier in the world, runs 17 OEM production lines in China, serving as a satellite auto parts supplier for several Chinese automakers.
(by CENS)