Automobile Industry the Largest Beneficiary of Changing Lifestyles in China

In 2009, the automotive company Geely Holding Group Co., impressed the automotive industry by the announcement of expansion to Detroit. This move was done amidst the economic down-turn that is plaguing the United States. This company is based in Zhejiang, China and is looked upon as a great example of the China’s growing strength and competitiveness in the automotive industry. This story is just one that solidifies China’s standing in the global automotive market. China now stands as the biggest automobile market in the world.

2008 was a bad year for many enterprises and businesses due to the global economic crises. The automobile industry was not an exception.

There is only one part of the world whose automobile market has made steady progress. It is not surprising China has seen steady growth of its automobile industry, despite the crisis that consumed the West.

In January 2010, Dr. Yu Hong and Dr. Yang Mu, both senior research fellows at the East Asian Institute, National University of Singapore wrote a research paper on China’s growing automotive industry. In this study “China’s Automobile Industry: An Update” the two explored the driving force behind the success of the industry.

According to this study, U.S. auto sales dramatically dropped to 2.2 million in the first quarter of 2009 due to the credit crisis.

As the U.S. falls, so is the rest of the West. Interesting enough, China is singing a different tune.

The Hong and Mu study also reported that the auto sales in China were recorded to reach 2.65 million on the same quarter. In addition, the total auto sales on the last quarter of 2009 were 3.96 million.

Direct automobile manufacturers are not the only ones benefitting from this surge in growth. China Automotive Systems Inc. is one of the leading companies supplying power steer-ing components and systems in China. In a press release for their 2010 first quarter financial re-sults, they announced that net sales increase 88 percent year-over-year -- up to $84.2 million. This is the highest quarterly sales figure for the company.

Chief executive officer Qizhou Wu commented, “We are encouraged by our first quarter result and long term growth potential of world’s largest auto nation. With the high saving account balance, Chinese consumers are increasing consumption of durable goods. Auto, as the second highest price tag after housing, remains a natural candidate for Chinese consumers. Auto is also the largest beneficiary of the changing life styles in China, as it gives Chinese people more free-dom to travel within and outside of the cities.”

Dow Jones Newswires reported that Xu Changming, director of economic research for the State Information Center, declared that China’s auto sales this year are expected to grow a healthy 13 to 15 percent. Xu further predicted that this year’s private vehicle market will grow an impressive 20 percent.

Government initiatives

Policies and initiatives implemented by the government such as tax brakes for auto pur-chases and even accessibil-ity of subsidies were a big encouragement for locals to buy vehicles. This move is an integral part of the government’s initiative to further strengthen key industries, which benefits the country.

The Yu Hong and Yang Mu study also outlines the different government initiatives and stimulus campaigns attrib-uted to the industry’s dominance. The study emphasizes the effects made by these government initiatives. When auto sales in the third quarter of 2008 decreased to 2.04 million from 2.57 million in the first quarter of, The Chi-nese government stepped in and saved the day. In 2009, sales were up 73.5 percent.

According to the study, in March 2009, the State Council of China carefully produced a new development outline for the automobile industry for 2009 to 2011. The outline has schemes involving upgrades, enhancement of technology and new engine promotions. The outline also has three main objectives. The first main goal is for production to move from assembling low-end vehicles to high-end manufacturing and products design. Second main goal is placing em-phasis on developmental research in the efficient production of energy-saving and environmen-tally friendly vehicles. The third goal is to support domestic car manufacturers by increasing de-mand. This goal involves the ``sell automobiles to peasants” program. The authorities are provid-ing one-off allowances for farmers to replace three-wheeled and low-speed vehicles. There is also a lower purchase tax on cars with small engines.

Changing lifestyle

There are several key factors that are behind the success China’s automotive industry. One of which is the lifestyle change of an average Chinese consumer, which in turn can be at-tributed to the nation’s strong economy. The National Bureau of Statistics, People’s Republic of China, 2009 report revealed that the average income of urban families in China rose from 16,159 yuan ($1,973) in 2005 to an estimated 24,302 yuan ($3,522) in 2008. This only proves that buy-ing power has dramatically changed for the average citizen.

According to Keith Bradsher’s article entitled “With First Car, a New Life in China” the firm J.D. Power &Associates made a calculation that four-fifths of newly sold cars in China is purchased by first time buyers .Furthermore, the firm revealed that this figure has been consistent for the last four years. The United States auto sales statistics seem to the exact opposite. Less than a tenth of new automobiles are bought by first time buyers.

China’s first time buyers seem to allocate a big portion of their new and empowered average income into purchas-ing new vehicles. This is the main reason why the country’s car industry’s growth and revenue surpassed those other auto giant countries like Japan and even the United States. Chinese people’s general outlook on vehicle purchasing has changed dramatically for the better and is in sync with their government initiatives and global economic development.

China’s support for domestic brands

China is well ahead of the global game when it comes to economic growth. According to the Auto Industry Devel-opment Report of 2009, a quarter of own-brand vehicles make up 30 percent of total car sales. China Automotive Technology and Research Center is focusing on safety performance technology as it seems to be more of a priority to the customers. Domestic automobile enterprises have been working for several years, accumulating studies, tests, technology to develop their own brands and their very own alternative energy automobiles. They have made progress, especially in electric cars and plug-in hybrid vehicles.

China has clearly set a new standard in the automotive industry. It has proved its dominance by overtaking U.S. sales. Outstanding economic growth and aggressive governance ensure that such dominance is here to stay. However, the more important issues of establishing steady technologies on renewable energy and fuel efficiency in the auto-motive industry are still unsettled. This may very well determine the dominance of one country to another in the years to come. Experts believe that whoever masters such technology shall rule the industry.