The outlook for vehicle production in China remains positive. Although demand will slowdown, it will still remain higher, when compared to other developed markets. IHS Markit expects domestic production to reach the 30 million unit mark by 2020. The main drivers will be shifting production to the non-traditional areas of production, to meet increasing demand from the inland provinces. As logistics costs remain high and pricing pressure continues with increased competition, carmakers will look to be closer to markets and produce vehicles better matched to consumer tastes. Although Chinese carmakers can meet price targets, it is the foreign carmakers or joint-ventures that can meet the quality and price mix even better.
China has been an economic juggernaut, having posted strong double digit growth, with some dips, since the 1980s. It remains the second largest economy in the world, accounting for 14.9% of the global GDP, right behind the US. However, the Chinese economy is beginning to slow down and if the country wants to sustain medium-term GDP growth at above 6% per annum, it is going to have to continue its reform process, reduce debt, and increase productivity.
Back in 2012, the Chinese government vowed to double per capita income by 2020. According to the World Bank, per capita GDP in China increased from USD3,471 in 2008 to USD8,123 in 2016. Although income has increased markedly, China remains far behind countries it considers competitors, such as Japan (per capita income of USD38,894) and South Korea (USD27,539). One government objective was to rebalance the economy away from heavy reliance on exports and focus on internal consumption. However, with the economic slowdown now a reality, the Chinese leadership has rephrased this goal to focus instead on higher quality, long-term growth, with no specific numerical growth targets. It can be argued that without specific targets, the government has room to implement some of the much-needed economic, environmental, and financial reforms, which might negatively impact growth. But whether this materializes remains to be seen.
Market review: developments and policies
Congestion and pollution regulation
New entrants in the new energy vehicle (NEV) market
Geography of demand
Shifting tastes and prices
China car industry roots
Evolving geography of Chinese car production
Outlook for exports
Changes in market structure
Private Chinese carmakers
Increasing OEM fragmentation
Supplier base growing
Domestic OEM sourcing
Foreign OEM sourcing
Automotive component imports & exports
Profitability under attack
Supply base structure
Volkswagen (including FAW, SAIC and JAC)
Changan (including Ford, Groupe PSA, Mazda, and Suzuki)
Dongfeng (including Honda, Renault-Nissan and PSA)
SAIC Motor (including GM and VW)
General Motors (including FAW and SAIC)
Hyundai-Kia (including BAIC and Dongfeng)
Beijing Automotive (including Daimler and Hyundai)
FAW (including GM, Mazda, Toyota and VW)
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