Global Economics

China's Car Exports Scale Up Big-Time


J.D. Power's Dunne says explosive growth of these exports in emerging markets may signal the industry's arrival as a global player

While the explosive growth of China's automotive market has global automakers and suppliers scrambling to set up or expand their operations inside the Middle Kingdom, the expected deluge of low-priced Chinese passenger car exports in the next few years has distributors and dealers from around the world lining up for the right to sell China-made cars in their home countries. Those companies that are fortunate enough to sign import and distribution agreements with leading Chinese automakers could be sitting on gold mines.

China sold approximately 4.3 million passenger vehicles (both locally produced and imported) in 2006, up an astounding 1.1 million vehicles from the previous year. Counting all vehicles sold in China in 2006—passenger vehicles, trucks, and buses—sales jump to 7.3 million overall, up from 5.8 million vehicles the previous year.

This makes China the second-largest vehicle market in the world, surpassing Japan and Germany, and trailing only the U.S. (The U.S. has been, and continues to be, the largest automotive market in the world, averaging about 16.1 million vehicle sales over the past decade.)

The Buzz About Exports

Moreover, for the first three months of 2007, overall vehicle sales in China are up again 22%, a pace which, if it continues, would mean total industry sales will reach just under 9 million units in 2007. This is a breathtaking achievement, considering China only sold about 2.3 million vehicles in 2000.

While China's domestic automotive industry is making all the headlines—and deservedly so—the potential for the country's nascent vehicle-export enterprise has importers, distributors, and dealers buzzing, from North America to South America, Europe to Africa, the Middle East to Australia, and beyond.

Exports of all vehicles from China exceeded 340,000 units in 2006, according to official Ministry of Commerce figures, making China only the fourth-largest vehicle exporter in Asia, behind Japan and Korea, and perhaps surprisingly, Thailand.

Loads of Potential

By comparison, Japan exported some 5.96 million vehicles in 2006, and Korea exported a record 2.7 million vehicles—with locally branded passenger cars accounting for more than 90% of each country's export volume. Thailand's exports topped 586,000 units in 2006, with Japanese-branded pickup trucks and passenger cars accounting for almost all of its export activity.

While China's vehicle exports account for a relatively small slice of Asia's overall export pie, the accelerated pace of China's export growth and the potential for further growth have both its competitors and its export cooperation partners sitting up and paying attention.

Since 2004, China's vehicle exports have doubled annually, from 78,000 units in 2004 to 173,000 units in 2005, and then to 340,000 units in 2006. And exports in 2007's first quarter are up again, nearly 100% compared with the same period in 2006. If this rate continues, it would put China on a pace to reach 700,000 vehicle exports in 2007. Moreover, the majority of these exports are of Chinese-branded vehicles such as FAW, Dongfeng, Liuzhou, JAC, BAIC, Chery, Geely, and others.

A "Pillar" Industry

If the Chinese government gets its way, this growth will gather speed in both volume and value over the next decade. Official industry estimates put the value of China's 340,000 vehicle exports in 2006 at about $3.2 billion, or $9,400 per vehicle. This compares with 2005 exports of 173,000 vehicles worth $1.58 billion, or an average of $9,100 per vehicle. By comparison, the value of Korea's 2.7 million exports in 2006 was estimated at $33 billion, or an average of $12,200 per vehicle, or 33% higher than China.

This would appear to give China's vehicles a significant advantage because of their ability to compete with other industrializing countries that still maintain low-cost positions. Though to be fair, this comparison is not completely "apples-to-apples," as most of Korea's exports are of passenger cars being sent to developed markets, while the majority of China's exports are a wide-range of commercial vehicles—varying in price from $3,000 for a one-liter "mini-truck" to $10,000-$12,000 for six-wheeled trucks or buses—sold to developing markets.

While China today is still a bit player in the global vehicle export game, the Chinese government has designated autos one of the "pillar" industries on which the country's economy is based. Hence, it's taking concrete action to support exports in the automotive sector.

Setting Limits to Support Pricing

China's leadership has said that it expects to increase the combined value of its vehicle and auto parts exports to a remarkable $120 billion by 2015, or about 10% of the world's total vehicle trading volume. This is an increase from only about $15 billion in exports in 2006 (for both vehicles and auto parts).

To support its ambitions, the government's first move was to establish favored automotive export zones in a half-dozen areas around China, providing favorable tax treatment and other perks to companies in the area—mostly Chinese-controlled—that are export-competitive. Its second move, announced in January, 2007, was that it would limit the number of exporter licenses issued to automotive-related companies in China, hoping to avoid the downward spiral in pricing experienced by other Chinese export industries when too many companies were allowed to compete.

The bulk of China's vehicle exports in the past have been of commercial vehicles—low-priced and relatively low-tech trucks and buses—mostly destined for countries with developing economies. In 2006, about 70% of the 340,000 vehicles exported from China fit into this commercial vehicle category, while the remaining 30% (about 101,000 vehicles) were passenger cars, SUVs, or vans intended mostly for personal transportation. While passenger vehicles account for the smaller portion of overseas vehicle sales today, the government, as well as Chinese OEMs and foreign importers, expect that Chinese passenger cars will eventually lead China's export ambitions.

Just Getting Started

Exports of passenger vehicles reached only 32,000 units in 2005, but tripled to more than 100,000 units in 2006. Furthermore, after the first three months of 2007, they're on pace to exceed 200,000 units for the full year.

For now, Chinese passenger vehicle exporters are cutting their teeth on developing markets in Southeast Asia, Eastern Europe, Russia, Africa, and Central and South America. There they're learning to refine their products to meet local tastes by improving their business processes and discovering how to market to, sell to, and service customers in foreign lands.

After they have had a chance to improve themselves in smaller markets, it will be only a matter of time before China's upstart automakers make their way to North America, Europe, Korea, and Japan, to take on the world's top competition and most demanding consumers.


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