Growth in vehicle exports from China started to slow down in the first half of 2008, but imports continued to surge. This was because the strongest demand for Chinese vehicles is in other developing markets while the growing band of wealthy Chinese is increasingly acquiring imports, Global Insight automotive analyst Ian Fletcher said.
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“Given the sheer volume of vehicles exported out of China, this growth rate could well continue to decline,” he wrote in a research note.
“Although Chinese automakers are beginning to look at selling even more vehicles in Europe and introducing models in North America, their plans are complicated by the regulations in place in these regions, as well as public perception of Chinese vehicles.
“New consumption tax regulations could result in a slight downturn in demand for imports, but this is unlikely to last.”
Fletcher said Chinese exports rose 58.5% in the first half of 2008 to 361,000 units, compared to 75.6% in the same period last year, while imports surged 75.6% to 212,000 units. The exports were worth US$4.62bn, an increase of 89% year on year.
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By GlobalDataAfrica took the largest number – 72,000 units, up 39.8% y/y. The ASEAN region bought 54,000 units, more than double the number a year ago, with 46,000 sold in Vietnam alone, triple the 2007 figure.
Russia imported 26.2% more Chinese vehicles (48,000), while the European Union (EU) bought 49.2% more, 33,000 units.
Chery dominated, shipping 56,000 units in the first half, although export growth was just 72.7% compared with 244.7% in H1 2007. Geely Automobile doubled exports to around 18,000 units.
Imports were notably lower than exports – 212,000 units during the first half – but growth was 53.2% vs 34.9% and value rose 71.3% to $7.74bn.
Japanese-made vehicles accounted for the majority of the imports at 87,000 units, up 80.7%, followed by EU models (71,000 vehicles, up 54.5%), South Koreans (28,000, up 33.3%) and the US (20,000, up 82.7%).
“The year on year growth in vehicle exports from China is still strong when taken in isolation, and it was always likely that there would be some decline in the growth rate during 2008 because of the sheer volumes involved,” wrote Fletcher.
“However, some other factors may have quelled the growth rate in the first half, including the regulatory policies in some of the most valuable markets around the world, such as North America and Europe.
“Vehicles sold there have to adhere to some of the most stringent exhaust emissions and crash safety regulations in the world, and certainly many of the product plans by some of the larger Chinese automakers have had to be delayed so that modifications can be made.
“China Brilliance, for instance, has had to return to the drawing board to improve the safety rating of its BS6 model that was initially sold in Germany after witnessing some terrible results in initial crash tests.
“Although this model has now achieved a three-star [Euro NCAP rating], it could be difficult to alter consumers’ opinion of the car in light of the earlier negative publicity.
“With others such as Chery with its A15 (known as the Amulet in some markets) and Jiangling and its Landwind befalling similar fates, the automakers will now need to work doubly hard to win sales in these markets.
“The toughest of these is likely to be North America, where at least five Chinese automakers have ambitions to break into the market over the next five years.
“Recent recalls of Chinese products there over safety concerns could influence the public reaction to Chinese vehicles as well. However, if the automakers can offer high-quality products sold at below the market rate, helped by the low labour costs in China, they could start to make some headway and achieve success in the same way that Japanese and South Korean automakers have in the past.”
Fletcher said the need for more Chinese automaker exports “will become more pressing in future” as the domestic market becomes saturated by vehicles from manufacturers investing in new facilities in the country.
He noted that most vehicles from China are relatively cheap while imports are mainly expensive luxury vehicles with an average value of $36,500 per vehicle, vs $12,800 for Chinese-made models.
“This is because the growing population of affluent citizens in parts of the country is demanding expensive vehicles to show off this new-found wealth, despite the huge import duties applied to such vehicles.
“Foreign automakers see this expanding market as an opportunity for growth to offset contractions elsewhere in the world. An emerging issue could be the Chinese government’s decision to raise the consumption tax on vehicles with engines over thre litres to 25% and those with engines over four litres to 40% in an effort to curb demand for vehicles with low fuel efficiency.
“Since many vehicles that are shipped into the country fall into this category, there could be a downturn in import growth just after the introduction of the tax hike. However, this is unlikely to be a long-term problem as the wealthiest individuals in the country are unlikely to be put off paying more for a premium product.”
