China’s automotive market and industry may be growing currently, but there are significant risks to future growth, according to a Deloitte consultant speaking today at an Automotive News conference in Beijing.
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Steve Aschkenase told delegates that it is not possible to reliably predict the future of the Chinese automotive market because there are ‘just too many uncertainties’.
He highlighted government policy towards the auto industry and its development as a major area of uncertainty, noting that government initiatives to provide extra support to some companies in areas such as innovation were unclear in their scope.
“No-one knows how much extra support there will be or whether that will lead to something that is not a level playing field,” he said.
Turning to the 11th Five-Year Plan, Aschkenase said that the stated objective of a 60% market share in passenger cars for independent Chinese brands was a ‘bit of a bombshell’.
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By GlobalDataAschkenase added that plans for export licenses were a further area of uncertainty in terms of implementation and interpretation.
However, he maintained that companies needed to approach the uncertainties in China with reference to different scenarios. Using these scenarios companies can identify core elements for strategies across scenarios and also assess ‘contingent strategies’ which are dependent on different scenario outcomes. It sounds complex, but it provides a framework for analysing strategic options in a highly uncertain environment.
The China automotive scenarios presented by Aschenkase at the conference as illustrative of the approach (he stressed there were no probabilities attached) included ‘Rough Road’, ‘Team Sport’ and ‘High Performance’.
Under ‘Rough Road’ a higher oil price causes the global economy to stutter and policy in China shifts to protecting jobs at home and away from economic liberalisation. Foreign joint ventures would suffer in this scenario, but Deloitte said that there would be additional impetus to new technologies that reduce energy usage.
The ‘Team Sport’ scenario sees the world divided into rival economic alliances, with China leading the Asia bloc that competes with rival blocs based in Europe and the US. Within the Asia bloc trade is open, but elsewhere products made in China face resistance. The Chinese government becomes more assertive and centralised, with the auto industry more highly controlled but market growth remains strong.
In the ‘High Performance’ scenario, economic liberalisation gathers pace and role of market forces gets bigger – this scenario favours the private sector and brings the greatest market growth in China, according to Deloitte’s modellers.
Dave Leggett
