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Factors driving China's car market
April 19, 2011, Tuesday
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FOLLOWING two years of rapid growth aided by government support, China's automotive market entered 2011 faced with the challenges of vehicle registration limits and higher interest rates.
However, these hurdles are merely interim impediments to the realization of China's true potential.
As China's government works to spread the benefits of economic development inland and include more of its population into its extraordinary growth story, it will unlock China's true market potential.
The next wave of Chinese automotive consumers will emerge from the interior regions of China, with demand far exceeding that of the major global automotive hubs that exist today.
With China's light vehicle sales jumping 32 percent in 2010 to 18.1 million vehicles and light vehicle production increasing by a commensurate 31.6 percent to 14.5 million, it would appear that nothing can halt China's growing vehicle industry.
While there is no doubt that China's population size, increasing per capita disposable income and comparatively low levels of motorization point toward a market almost boundless in its potential, it is also clear that China's economy is at a crossroads in terms of its development.
Actions taken to moderate gross domestic product growth, together with the withdrawal of scrappage incentives and the return of vehicle purchase tax rates to 10 percent, should slow growth in China's auto industry this year.
China's light vehicle market is expected to grow 5 percent to 15.3 million units this year. This is modest growth by recent Chinese standards, but China is still expected to contribute the lion's share of global assembly growth in 2011.
The second-highest priority on the government's agenda is to increase the household consumption share of China's GDP.
As this economic rebalancing and transformation takes place over the next decade, an increasing share of China's overall consumption as well as automotive sales will be driven by consumers from smaller cities, towns and villages across China's interior.
China's long-term market potential is a discussion around expectations for the standard of living in China. Vehicle ownership, an important aspect of living standards, is above 800 vehicles per 1,000 people in the United States and between 500 and 600 vehicles per 1,000 people in Germany and the United Kingdom.
If China is to achieve a standard of living similar to the UK or Germany, then its vehicle population will have to grow by more than 720 million. At a sales pace of 30 million vehicles a year, it will take roughly three decades to achieve this level of penetration even with conservative scrappage assumptions.
As mentioned earlier, China's vast inland regions represent the greatest source of future domestic demand, but it is still a difficult variable to assess when calculating Chinese market potential.
The combination of smaller housing-debt burdens, lower living costs, rising income and a growing road infrastructure across inland regions signals strong upside potential for automotive sales.
The demands and requirements of these consumers will shape the product mix for the automotive industry. Historically, small and mid-sized cars have dominated the product mix in China.
With rising affluence among urban consumers, China experienced ever-growing demand for larger and more premium, luxury products while the market share for entry-level small compacts languished.
Emerging inland and rural consumers are expected to be more rational and utilitarian in their purchasing preferences.
The Chinese government is also eager to promote vehicles with small displacement engines. As stated in its "Automotive Industry Revitalization Program," they hope to achieve a 40 percent market share for vehicles with engines smaller than 1.5-liter and 15 percent market share for vehicles with engines smaller than 1.0-liter.
These developments will influence auto makers to launch more products in the sub-compact and compact range. Therefore, the market share of the sub-compact is estimated to grow from 10 percent in 2010 to roughly 16 percent by 2017.
Historically, China's commercial vehicle market growth has correlated with national gross fixed asset investments. However, as the central government shifts near-term attention and resources to underdeveloped areas, burgeoning inland markets may spark a new era of light commercial vehicle demand.
Almost all long-term indicators point to China's massive potential. By 2017, China is expected to build and sell close to 27 million light vehicles annually, larger than the US, German and Japanese markets combined.
While the sheer volume of its headline growth will be the tide that lifts all boats, there are bound to be winners and losers.
However, these hurdles are merely interim impediments to the realization of China's true potential.
As China's government works to spread the benefits of economic development inland and include more of its population into its extraordinary growth story, it will unlock China's true market potential.
The next wave of Chinese automotive consumers will emerge from the interior regions of China, with demand far exceeding that of the major global automotive hubs that exist today.
With China's light vehicle sales jumping 32 percent in 2010 to 18.1 million vehicles and light vehicle production increasing by a commensurate 31.6 percent to 14.5 million, it would appear that nothing can halt China's growing vehicle industry.
While there is no doubt that China's population size, increasing per capita disposable income and comparatively low levels of motorization point toward a market almost boundless in its potential, it is also clear that China's economy is at a crossroads in terms of its development.
Actions taken to moderate gross domestic product growth, together with the withdrawal of scrappage incentives and the return of vehicle purchase tax rates to 10 percent, should slow growth in China's auto industry this year.
China's light vehicle market is expected to grow 5 percent to 15.3 million units this year. This is modest growth by recent Chinese standards, but China is still expected to contribute the lion's share of global assembly growth in 2011.
The second-highest priority on the government's agenda is to increase the household consumption share of China's GDP.
As this economic rebalancing and transformation takes place over the next decade, an increasing share of China's overall consumption as well as automotive sales will be driven by consumers from smaller cities, towns and villages across China's interior.
China's long-term market potential is a discussion around expectations for the standard of living in China. Vehicle ownership, an important aspect of living standards, is above 800 vehicles per 1,000 people in the United States and between 500 and 600 vehicles per 1,000 people in Germany and the United Kingdom.
If China is to achieve a standard of living similar to the UK or Germany, then its vehicle population will have to grow by more than 720 million. At a sales pace of 30 million vehicles a year, it will take roughly three decades to achieve this level of penetration even with conservative scrappage assumptions.
As mentioned earlier, China's vast inland regions represent the greatest source of future domestic demand, but it is still a difficult variable to assess when calculating Chinese market potential.
The combination of smaller housing-debt burdens, lower living costs, rising income and a growing road infrastructure across inland regions signals strong upside potential for automotive sales.
The demands and requirements of these consumers will shape the product mix for the automotive industry. Historically, small and mid-sized cars have dominated the product mix in China.
With rising affluence among urban consumers, China experienced ever-growing demand for larger and more premium, luxury products while the market share for entry-level small compacts languished.
Emerging inland and rural consumers are expected to be more rational and utilitarian in their purchasing preferences.
The Chinese government is also eager to promote vehicles with small displacement engines. As stated in its "Automotive Industry Revitalization Program," they hope to achieve a 40 percent market share for vehicles with engines smaller than 1.5-liter and 15 percent market share for vehicles with engines smaller than 1.0-liter.
These developments will influence auto makers to launch more products in the sub-compact and compact range. Therefore, the market share of the sub-compact is estimated to grow from 10 percent in 2010 to roughly 16 percent by 2017.
Historically, China's commercial vehicle market growth has correlated with national gross fixed asset investments. However, as the central government shifts near-term attention and resources to underdeveloped areas, burgeoning inland markets may spark a new era of light commercial vehicle demand.
Almost all long-term indicators point to China's massive potential. By 2017, China is expected to build and sell close to 27 million light vehicles annually, larger than the US, German and Japanese markets combined.
While the sheer volume of its headline growth will be the tide that lifts all boats, there are bound to be winners and losers.
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