China's Automobile Industry to Take the Brunt of Impact of WTO Entry
that for cars will be 30-37.5% of the current level. Such a sharp drop will bring pressure to bear on the automobile industry in two ways.
Firstly, the pressure of raising the technology level and reducing costs: As a technology-intensive industry, the automobile industry requires production enterprises to make large investments, form scale production, and spend more on digesting new technology and research and development of new products. Expense on R&D is another indicator of the capability of competitiveness on the world market. The expenditure on R&D by Chinese automobile enterprises is less than 2% of their sales volume, compared with a world level of 2-10%. Under the current situation, development of a new model is estimated to cost at least US$150 million, with an R&D period lasting several years. According to statistics, China has invested about US$1.3 billion in the automobile industry during the Ninth Five-Year Plan period (1991-2000). However, there is not one automobile enterprise in China that can bear such a high R&D cost. With no capability to develop complete vehicles, it is hard for the Chinese automobile industry to compete with foreign companies.
The second is price depreciation. Those whose prices are higher than the world market prices, such as cars, luxury buses and trucks, mainly feel the pressure from price reductions. The direct and the most effective means for foreign automobile manufactures to enter a new market is to cut price and cost. Low price can win loyalty from customers and help enterprises achieve a bigger market share. Research proves that when domestically made car prices are higher than imported ones, only 20-25% of the potential buyers prefer to buy locally made cars, when the price is equivalent or lower than the imported model, 40-47% prefer locally made cars, and when the price is less than 80% of the same model of imported cars, the percentage increases to 55.5-87%.