Auto Industry Forges Ahead after China's WTO Entry

Auto Industry Forges Ahead after China's WTO Entry

China's automotive industry has survived the gloomy predictions of an influx of cheap foreign vehicles in the first year of World Trade Organization (WTO) membership. As part of its WTO commitments, China agreed to gradually reduce tariffs, eliminate restrictions on foreign investment and open up its market to foreign companies. However, the international auto giants' entry into the market of the world's most populous country has not affected the domestic industry as severely as many feared a year ago. China Association of Automobile Manufacturers statistics show the output of domestically made vehicles increased by 35.3 percent year-on-year to 2,822,700 units during the first 10 months of this year. The production of sedans accounted for 839,900 units, rising by 46.3 percent. Senior economist Liu Ming of the State Information Center (SIC) predicted that the annual total output of motor vehicles in China would reach 3.1 million to 3.2 million units and that of passenger cars would exceed 1.1 million. Although car prices did not drop as drastically as expected this year, sales boomed. Shanghai General Motors Corp., a Sino-US joint venture, sold 100,188 Buicks from January to November this year, more than double last year. Sources with the Beijing North Auto Market say sales in this first 10 months increased by 48 percent. SIC vice-director Xu Changming said new products prevailed after China entered the world trade body. Sixty percent of sales are new models. "More importantly, these products have succeeded in complying with international standards," he noted. Liu Ming said the mushrooming of new models had helped keep prices down and given consumers more choice. He said the Chinese were spending more on housing, cars and travel and more young people and ordinary citizens, rather than entrepreneurs, had joined the army of car owners. Meanwhile, he pointed out that a lot of Chinese who suspended major expenditure before China's accession to the WTO finally made their decisions to buy cars this year. On the other hand, automobile imports had not seen a sharp rise, which Liu attributed to factors such as tariffs, quota and exchange rates. Although the Chinese government promised to cut car tariffs to 25 percent by 2006, this year's figure held at 43.8 percent, plus a value added tax of 17 percent, Liu said. This year's import quota value is 7,935 million US dollars, an almost five fold increase, but this was diluted by the nation's huge demand. Liu said the weak US Dollar against the Euro and Japanese Yen drove up prices of European and Japanese cars, which offset the price drop due to the lowered tariff. Liu predicted that the auto industry would continue to thrive next year with more new models, but warned that gradually the foreign competition would be sure to increase. For instance, he said the price of domestically made parts was higher than those made in other countries and the technology was relatively low. The coming global parts purchasing measure would be a challenge to domestic manufacturers. He suggested the industry should improve service and product quality, and promote more new models to survive.