Automotive Industry: Growing Up

After China joined the World Trade Organization (WTO) in 2001, many within the domestic automobile industry feared that foreign competition would severely undermine local manufacturers, potentially leading to the collapse of the national auto sector. However, this fear did not materialize. Instead, over the following four years, the Chinese auto industry not only survived but also began to evolve into a more structured and mature market, achieving significant progress and development. One of the key factors that reshaped the industry was the gradual reduction of import tariffs on vehicles. Initially set at 80% to 100%, these rates were reduced to 25% by July 2006. This policy opened the door for global automotive giants such as Toyota, Nissan, and Peugeot PSA to enter or expand their presence in China. With the Chinese car market growing at a rapid pace—around 13% in 2004—foreign automakers saw great potential in the country, especially in terms of production and sales. By 2005, the "6+3" global automotive leaders had all established operations in China. Joint ventures became increasingly vital to the industry, with 80% of the growth attributed to these partnerships. Major players like General Motors, Ford, Daimler-Chrysler, Volkswagen, Toyota, and BMW announced plans to boost production in the country, investing billions in new facilities and expanding their local operations. In addition to foreign investment, domestic companies also started entering the automobile manufacturing sector. In 2003, Midea, Oaks, and Greenkell entered the industry, sparking what became known as the “wandering Chinese” builder movement. These moves reflected the growing confidence and ambition of Chinese firms. According to Li Chunbo, a research fellow at CITIC Securities, joint ventures helped enhance the technological capabilities and R&D efforts of local manufacturers. He noted that domestic automakers now have production technology close to international standards, laying a solid foundation for sustainable development. The restructuring of the domestic auto industry has also led to a more rational industrial and product structure. The ratio of commercial to passenger vehicles has approached 1:1, and the top five enterprise groups account for 70% of total domestic production. However, the rapid expansion of production capacity brought challenges. By 2005, the scale of domestic car production and sales had grown significantly, with over 2.8 million units sold. Yet, this growth led to overcapacity, particularly after the 2004 macro-control policies. Inventory levels exceeded 400,000 units, and experts predicted that excess capacity could surpass 20-25% in the next few years. This overcapacity intensified price wars, causing profits to decline from peak levels to near international standards. Despite these challenges, the Chinese auto market continued to grow. In 2004, it maintained a 13% growth rate, marking an adjustment period post-WTO accession. By 2005, the final year of the initial WTO transition phase, tariffs were further reduced, and import quotas were eliminated, bringing the market closer to international standards. New policies in 2005, such as the automobile brand sales management method and the cancellation of import vehicle quotas, significantly impacted imported car dealers, many of whom exited the market. Despite these fluctuations, the Chinese auto market gradually became more rational and mature. Looking back at the past four years since WTO accession, the Chinese auto industry has shown steady development. According to Li Chunbo, the domestic market has seen a rapid increase in product diversity and a significant drop in prices, making cars more accessible to families. The consumer base has shifted from government and corporate purchases to private ownership, with private car ownership rising from less than 40% to nearly 60%. Moreover, domestic brands like Chery and Geely have gained traction, showing promising growth despite their relatively young status. While they still face challenges, their long-term potential is widely recognized. Overall, the Chinese auto market remains a dynamic and sustainable one, with strong growth expected during the "Eleventh Five-Year Plan" period.

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