At the beginning of the new year, shortly after China joined the
WTO, the prices of Chinese made cars -- mostly those in the economy
range, but also including some middle and high-grade cars,
plummeted on an unprecedented scale, from 6 percent to nearly 20
percent.
The main reason for this is the high pressure the Chinese car
market is expected to undergo after China's WTO entry. Through till
2006, the 80 to 100 percent tariff on imported cars will be reduced
to 25 percent, and that on the import of spare parts will decrease
to 10 percent. Although this is an evolutionary process, prices of
Chinese made economy and middle-range cars have been reduced as a
matter of necessity, as those of imported cars have decreased in an
all-round way, some to a level of 30 percent. This means an
increasing number of cars will be imported, and some will be the
same price as Chinese made cars. Price reduction is therefore
imperative.
In
order to exploit the Spring Festival to the full, in terms of
making use of this golden opportunity to stimulate consumption,
Chinese auto makers are employing price strategies that will
increase sales volume, and make up for losses caused by price
reductions. This is the only way they can seize a greater market
share, and guarantee their long-term profits.
The Chinese government has always attached great importance to the
development of the auto industry. Since the founding of the PRC in
1949, and in order to make it into a national industry, China has
granted the auto industry a high degree of protection. However,
things did not develop as rapidly as was hoped. Few of China's
numerous auto enterprises are of a large scale. In 1982, there were
over 2,500 auto and spare parts manufacturers, but their total
annual output was less than the single shift output of an average
Japanese, American or European auto-manufacturers.
Since the mid-1980s, spurred on by Chinese preferential policies
for foreign investment, international auto giants, such as
Volkswagen, GM, Ford, Toyota, PSA Peugeot-Citroen and Fiat, have
established joint ventures in China, indicating good prospects for
the Chinese auto industry. Since the middle and latter part of the
1990s, stimulated by fierce competition, various auto joint
ventures have developed a line in economy cars to suit the Chinese
market, and have meanwhile enhanced production localization. For
instance, Shanghai Volkswagen has localized 95 percent of its
regular production. But domestically manufactured cars, protected
by the high tariffs imposed on imported cars, and accustomed to
high profits, are reluctant to make big price reductions. Although
there has been some progress, there is still a large gap between
Chinese auto manufacturers and international auto giants, as
regards scale and service. To date, China has still not formulated
its own auto industry, as of the numerous Chinese auto
manufacturers, not one has internationally competitive power.
With China's WTO entry, the domestic market faces huge challenges,
of which substantial price reductions are just one. It is only
through fierce competition that a powerful enterprise can be
forged, and that the Chinese auto industry can grow up.
As
cars are easily replaceable products, their price is a key selling
factor, and has the greatest influence on prospective buyers. This
is evident from the aftermath of the September 11 terrorist attack,
when it was only the auto industry, within the generally depressed
state of the American market, that was able to maintain its
prosperity. The reason for this was the application of preferential
policies, such as price reductions and loans without interest. In
China, price reductions have resulted in several brands of cars
being completely sold out. The current trend in China is to own a
family car, but for most ordinary people, this is just a dream, as
its high price presents an insurmountable problem. In addition, the
consumption credit service is in its initial stage: its scale is
limited, and stringent requirements must be met. Consequently, only
10 percent of cars are bought on credit -- a far lower level than
that of developed countries. With China's WTO entry, foreign
financial institutions now have official sanction to develop car
consumption credit services, and relevant regulations will be
formulated by the Central Bank that will lead to a gradual
improvement in the Chinese car consumption credit market, and
provide Chinese people with more choices.
Sales networking and after-sales service still need to be updated
and improved. This is one main reason why a certain number of white
collar workers that could otherwise afford to buy a private car
prefer, for reasons of reliability and convenience, to take a taxi.
Although the Chinese auto giant Shanghai Volkswagen did not
participate in the recent price reductions, it has announced its
plan to perfect a sales network and after-sale service, with the
aim of attracting more customers. In the near future, Chinese car
buyers will enjoy a good all-round service.
Price reductions mark only the beginning of the adjustments for the
Chinese auto industry. With China's WTO entry, its auto industry
will undoubtedly be revitalized. The Chinese government can fulfill
its dream of making the auto industry its main national industry,
and domestic auto manufacturers can improve their core competitive
power and formulate world famous brands. Still more important, as a
result of such stiff competition, the prospect of a family car will
cease to be a dream for the Chinese man-in-the-street.
(China
Taday March 30, 2002)