Huge Opportunities in China's Automotive Market Outweigh Excess Capacity Concerns
New report from Ernst & Young finds automotive executives optimistic, but warns of a short term shakeout
SHANGHAI, China, March 14 -- China's automotive industry is poised to have a major impact on the global automotive market, providing it can resolve some critical issues, according to a new Ernst & Young report, China's automotive sector - at the crossroads, launched today at The Second China Automotive Industry Roundtable in Shanghai, hosted by Economist Conferences.
"Vehicle sales over the last 10 years have proven that China is a huge automotive market," said Mike Hanley, Global Director of Ernst & Young's Automotive Practice. "And now with continued governmental support, Chinese vehicle manufacturers are determined to become serious competitors in the global marketplace."
The report features findings of research undertaken amongst senior executives of domestic and foreign automotive companies. The main findings are:
* The Chinese government is not about to loosen its grip on the industry,
and will continue with its strategy of supporting Chinese-owned
automotive companies.
* The size and potential of the Chinese automotive market will continue
to attract inbound investment despite concerns of overcapacity. Those
who select and implement the most appropriate strategy will succeed.
* The Chinese automotive industry continues to be the subject of
regulation. Foreign companies will continue to have to operate through
joint ventures but commercial forces will put pressure on these
arrangements.
* Concerns over excess capacity in China are probably overblown, mainly
because they assume that all planned capacity will actually be built.
However, we will see a competitive shake out as a result of poor
investment plans and excessively optimistic assumptions about sales.
* China has started exporting cars, but export volumes will rise only
gradually due to low quality levels amongst domestic producers, lack of
infrastructure, and the reluctance of foreign companies to export from
China.
* Particularly, exports of Chinese-made components will rise more quickly
and have the potential to change the structure of the global industry.
Hanley highlights the importance of recognising the implications of these factors, and the need to monitor and review them regularly, "The ownership and control structures of domestic automotive companies will gradually become more transparent. As a result, foreign companies will have the opportunity to strengthen relations with their domestic Chinese partners."
"China remains the fastest-growing, and for some the most exciting, auto market in the world today. Given the potential scale of the Chinese economy, the scope for success and the need to manage risk are enormous-for both domestic and foreign companies," concludes Hanley.
Notes to Editors:
* China's automotive sector - at the crossroads - an interim report was
written in conjunction with the Economist Intelligence Unit. It is
based on in depth interviews with business leaders and industry
analysts combined with extensive desk research.
* As well as independent research, the survey features qualitative
interviews with domestic and foreign automotive companies in China,
with the aim of gaining first hand perspective on the Chinese
automotive sector. These respondents offer enlightening views on the
status of the industry, including that new companies and capabilities
are being built in an effort to export more, aided by strong government
support in the growth of domestic companies within the sector. The
research was conducted by The Economist Intelligence Unit, on behalf of
Ernst & Young.
* The full report of "China's automotive sector - at the crossroads" will
be available in April 2005. It explores the market trends and
challenges facing foreign and domestic companies in China, and the role
of government policy in shaping the sector in more detail. Please e-
mail Jillian O'Grady at jogrady@uk.ey.com, tel. +44 (0)20 7951 2000 for
copies of the report.
* The Second China Automotive Roundtable is an annual event that gathers
senior executives in the automotive industry, specifically dedicated to
exploring the Chinese market, the practicalities of working in the
country and the industry's challenges.
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About Ernst & Young's Global Automotive Practice
Ernst and Young is a leading service provider to the automotive sector. With professionals located near every automotive hub around the world, the Ernst & Young Global Automotive Practice brings together the firm's automotive professionals to serve the industry in an innovative, collaborative environment. These professionals collaborate to leverage their knowledge of finance, transaction and risk, and to anticipate major challenges facing clients in the global automotive industry. Ernst & Young's Global Automotive Practice is dedicated to developing and planning integrated assurance, tax and transaction advisory solutions, and delivering them to automotive clients.