China Autos Report Q2 2008

The growth of China's automotive market continues unabated, registering a record year in 2007, with both production and sales rising by over 20% year-on-year (y-o-y). According to data from the China Association of Automobile Manufacturers (CAAM), production rose by 22.02% to 8.88mn units. China is now firmly established as the second-largest vehicle market after the US, with further growth expected.

CAAM forecasts another year of double-digit growth in 2008 to take sales over the 10mn unit mark, while in its recently published China Autos Report, BMI has also raised its forecast to predict growth of 15% to 10.1mn units. The increased prevalence of home-grown models was also evident in 2007 in the 1.24mn Chinese-branded sedans sold.

China's position as an automotive export hub was also enhanced, as Chinese automotive exports surged by 79% in 2007, to 612,700 units. Passenger car exports more than doubled to 188,600 units in 2007, while bus exports rose 210% to 85,100 units and off-road vehicle exports increased by 220%, to 25,700 units. As a result of this performance, both the Chinese government and BMI expect vehicle exports to top 1mn units per annum by 2010. In terms of Chinese companies finally getting a foothold in the US, Quantum, the US subsidiary of Israeli holding company Israel Corp, has been granted approval by the Chinese government for a joint venture with carmaker Chery. The new company will produce sedans and SUVs both for the Chinese and export markets as Chery aims to raise its global sales to 1mn units by 2010.

Unsurprisingly then, given its growth in all market areas, China leads BMI's new Business Environment Ratings for the Asian automotive industry with a score of 66.9 from a possible 100. The market's highest scores are for its production and sales growth potential, based on BMI's forecasts up to 2012. However, even though a low level of vehicle ownership can look tempting in terms of possible growth, the low score for Country Structure (caused by the large gap between wealthy towns and poorer rural areas) acts as a clear restriction on potential penetration. In terms of China's macroeconomic environment, a healthy long-term political and economic outlook ensures strong scores for the country's risks to realisation of returns.

Spurred on by China's healthy business environment, General Motors (GM) became the first foreign company to sell one million vehicles in a year in China, and in doing so reached the sales target that it set for 2007. In all vehicle segments combined, GM retained the advantage over its German rival Volkswagen (VW) with a 19% sales increase y-o-y, to 1.03mn units. Volkswagen's combined sales of over 900,000 vehicles in 2007 secured a record for the German firm, despite staying in second place. The battle between the two is likely to intensify in 2008, however, following Shanghai-VW's acquisition of additional capacity in the form of Fiat's former plant in Nanjing.