China Auto Industry Official Predicts Steady GrowthChina Auto Industry Official Predicts Steady Growth

BEIJING – Chinese auto makers are following suit as the country’s economic growth settles into a steadier pace than in the last decade, a leading industry representative says.

Dong Yang, secretary general and executive vice chairman of the China Association of Automotive Manufacturers (CAAM), tells WardsAuto 2012 sales and output of autos in China should match the previous year’s increase of 5%.

The former Beijing Auto executive predicts the 2013 market could be even better due to the ebbing influence of government subsidies paid in 2009-2010 to counter the global financial crisis. The subsidies created demand, but a market hangover followed.

Dong also expects the sluggish commercial-vehicle market will recover. “An improving macroeconomic situation suggests truck sales might reach its bottom and rebound soon,” he predicts.

But there still is work to be done. CAAM last month reported increased sales and production by Chinese auto makers, but the industry’s gross profits decreased.

Despite the mixed results of recession-fighting subsidies, the government still is happy to continue promoting electric-vehicle sales. Dong says more incentives for non-hybrid, all-electric EVs will be introduced.

“Government continues to support the development of new-energy cars, and there won’t be any policies to slow development of this sector,” he says.

And although sales of EVs remain sluggish, the government still is insisting Chinese auto makers build them. A policy change may come, but not quickly.

Dong admits “the outcome in this sector has not been as expected,” with sales estimates set “higher than they should have been.”

He is comfortable with the current level of sales, however, noting the market still is in its early phase. The government still is drafting policies regarding green vehicles, he says, adding, “New and detailed chapters will be added to complement (the) system.

Discussing the overall market for local brands, Dong allows they are not selling as well as joint-venture vehicles manufactured in China. But he believes markets below the top tier of cities may offer domestic brands local makes a second chance.

 “They focused too much on big cities,” he says, noting Chinese auto makers need to open “more stores or service facilities” in rural areas and smaller towns and cities.

Rural regions already are an important market for light-commercial vehicles such as the vans produced by General Motors and its JV partner SAIC, but Dong contends demand exists for a wider range of vehicles. “It would be wrong, and a case of stereotyping, to assume farmers only drive minivans or minitrucks.”

One recent market development Dong believes is a false trail is banking on weakening Japanese brands’ sales in China because of recent diplomatic rows over ownership of the Diaoyu/Senkaku islands in the East China Sea. This follows reports that some Japanese car companies have cut China production due to lost sales and may delay investment in the country.

But Dong believes Japanese auto makers will recapture their market share within one year: “So long as Japan remains reluctant in solving historical problems, its disputes with China and (South) Korea and other countries will always lead to market turmoil. But so long as the Japanese autos are free from major quality problems, these political disputes will never pose a fatal threat.”

The frail economy of the European Union is a greater concern because Europe accounts for about 10% of Chinese exports overall, Dong says. And while China exports few vehicles to the EU, he is more worried about creeping protectionism.

The industry executive cites EU complaints to the World Trade Organization over alleged illegal subsidies regarding auto parts, and claims the EU also is “replacing imports from China with products from new EU member countries from eastern Europe.”

Speaking on the quality of Chinese auto exports, Dong says quality and safety problems have been overblown. He points out that the country’s accident rate per 100 domestic-brand cars in 2010 was the same as JV products’ 2004 level, meaning safety has “kept improving year by year. So the problems in this sector are not as serious as people have assumed.”

While he believes exports of Chinese cars “won’t increase at high speed, this is not due to quality or safety concerns, but rather for the unpreparedness of Chinese companies in researching and adapting to target markets.”

Dong also dismisses concerns raised by analysts and media about Chinese auto makers having excess capacity. He argues production has been growing “slower than foreign brands, which indeed were faced with shortages of capacity.” For example, GM and Volkswagen have been building factories here.

But China is different from Japan or America, “where factories were shut and autos were exported to deal with a shrinking domestic market.” Output (here) will grow to meet domestic demand, with production possibly doubling within a decade, he predicts.

Dong claims analysts alleging overcapacity wrongly perceived “the Chinese auto market is still operating in the planned economy. But actually it is highly market-oriented. So companies don’t build capacity without a good reason.”

He adds that figures quoted by consultancies may be based on Chinese media reports about faked capacity: “These were used to influence the capital market or acquire land resources from local government.”

Looking ahead, the CAAM predicts solid growth, but it will not come easily. In its December industry briefing, the association listed challenges to future sales, such as restrictions on new-car purchases in China’s traffic-clogged cities and increased capital and labor costs.

Dong believes the local brands’ market share might drop over the next two to three years. “But we hope that 10 years from now, domestic and foreign brands could both win and won’t end up in a zero-sum game.”

Dong particularly praises Great Wall for solid management and steady growth. However, “Some domestic brands like BYD were not as good as foreigners assume. Definitely, BYD has a longer way to go.”