China Takes Strategic Approach to Boost Auto and Parts Exports
2009/04/10 | By Michelle HsuChina is well established as an auto parts supplier to the world, and its exports of parts and complete automobiles as well soared by 20% last year despite a slowdown in the fourth quarter.
Statistics compiled by the China Association of Automobile Manufacturers (CAAM) show that overseas shipments of autos and parts last year actually rose 21.6%, to US$49.729 billion, while imports climbed 20.96% to US$31.429 billion. The recession currently ravaging the world economy, however, is expected to result in a contraction of these figures.
The growth of exports in the category began to slacken last November and even went slightly negative the following month. According to Chinese customs statistics the slide continued in the first two months of 2009, dropping 14% compared to the same months of the previous year.
Even that decline looks good when compared with the nosedive that auto sales in the United States, China's largest overseas market for auto parts, have suffered.
Relative to the rest of the world, China's overall economic performance has been stable so far. The country has gradually reduced its reliance on exports to power economic growth, and exports are now equal to only 35% of GDP. Today, it is domestic demand that is the main force behind the growth of China's auto parts industry-and the government is using stimulus measures to keep it that way.
China's auto sales have already surpassed those in the U.S., with 9.38 million units moved last year, and the figure is expected to top 10 million in 2009.
But much of the focus of development is still on overseas markets. In response to the steep drop in international demand, Beijing reinstated an export rebate program and eased requirements for export credit guarantees.
"We're also thinking about other ways to help exporters survive this wave of global economic downturn," noted an official at China's Department of Commerce. "These include helping companies to obtain favorable bank loans, easing of restrictions on corporate operations, and so on."
To boost exports of whole automobiles, China is using a step-by-step approach that starts out with less-developed markets. Last November, Beijing invited officials from seven countries (Vietnam, Iran, Egypt, South Africa, Ukraine, Syria, and Algeria) to a meeting with Chinese industrial development officials and over 200 representatives of big automobile and parts makers there. A declaration of cooperation signed during the meeting paves the way for Chinese-made cars to enter markets in the participating countries.
Some of those countries have already imported Chinese-made cars. Vietnam recorded an increase of 141.1% in imports of Chinese cars in the first three quarters of 2008. Egypt saw an increase of 117.6%, Ukraine 86.9%, and Algeria 40.4% during the same period.
"This high rate of growth encourages Chinese automakers to continue their efforts to make quality cars for those markets," commented representative from Changcheng Motor during the meeting.
"And China's cars are priced higher than they were before," observed a representative from South Africa, "due partly to the rise in value of the renminbi (RMB) currency and partly to an increase in production cost. But we're willing to pay more for higher-quality cars."
China's strategy is for rising exports of whole cars to bring a corresponding increase in shipments of original equipment manufacturer (OEM) parts, which are generally made with a higher level of manufacturing skills than those needed for AM parts. To help foreign buyers save on customs tariffs, Chinese automakers encourage them to purchase auto parts and then assemble them into whole cars in their own home countries.
The rapid spread of Chinese products in the international market has, however, prompted other countries to take defensive action. The World Trade Organization (WTO) ruled last December that China's policy on auto-parts tariffs violated international rules and demanded that the country eliminate unfair practices. Failure to do so would give the parties that brought the complaint (the U.S., the European Union, and Canada) the right to impose trade sanctions.
China has restricted imports in order to protect its own auto-parts industry, but the WTO's decision should encourage it to open its market more widely.
The European Union raised tariffs on imports of nuts and bolts from China to as high as 85% as an anti-dumping measure, and the duty boost is expected to strike a heavy blow to over 200 Chinese makers of auto parts, machinery, and home appliances whose collective exports to the EU are worth 275 million euros a year. Obviously, the rise of international protectionism is a major concern for China as it strives for an increasing share of the global market for automobiles and auto parts.