Page: 1
Auto Industry in China
Auto Industry in China
China has emerged rapidly as a consumer market for automobiles. Over the 1994 to 2000 period, volume car sales grew by 3400%, with private household segment showing the most significant gain. With China becoming a member of the WTO, tariffs on imported cars were reduced significantly. On January 1, the duty on automobiles of up to 3,000 cc was reduced from 70 percent to 43.8 percent, and on higher-powered cars from 80 percent to 50.7 percent. This makes the imported cars more competitive in terms of price. Despite rising incomes, sedan cars are still regarded as a kind of luxury in people’s daily life in China. Therefore, the decisive factor for consumers buying cars is the market price.
In recent two or three years, China’s automobile industry is bracing for a drastic price war. The price war mainly takes place in the local car industry. Domestic car manufacturers are sharply reducing their prices in an effort to keep their market share. However, most recently, some of the foreign car manufacturers have started participating the price war as their market strategy for entering China market.
Problems exist in China’s auto industry:
1. Backward technology, low research and development capacity and low productivity, which result mainly from the country's decades-long isolated vehicle policy under its planned economy, are mainly considered to be the most serious defects affecting the auto industry's development.
2. Research institutions affiliated to State-owned auto firms, long accustomed to the planned economy, are not competitive enough.
3. Most of the local companies are still operating without reaching economy of scale. The obstacle of low productivity is the direct outcome of lack of competition in the market.