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A Study of Changes in the Chinese Automotive …

Proceedings of the 15th Annual conference of the Association for Chinese Economics Studies Australia (ACESA) A Study of Changes in the Chinese Automotive Market Resulting from WTO Entry Lily Lin Qiu Lindsay Turner Lindsay Smyrk1 Abstract The booming demand for motor vehicles in China has made China the most rapidly growing Automotive market in the world. The entry of China into the World Trade Organisation (WTO) is expected to accelerate the trend. Although often well established in China before WTO entry, the world s large vehicle manufacturers have responded to Chinese WTO membership by establishing additional joint ventures and new assembly plants and by the launch of new models.

Proceedings of the 15th Annual Conference of the Association for Chinese Economics Studies Australia (ACESA) 1. Introduction China’s WTO entry has significantly impacted on the Chinese automobile market.

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1 Proceedings of the 15th Annual conference of the Association for Chinese Economics Studies Australia (ACESA) A Study of Changes in the Chinese Automotive Market Resulting from WTO Entry Lily Lin Qiu Lindsay Turner Lindsay Smyrk1 Abstract The booming demand for motor vehicles in China has made China the most rapidly growing Automotive market in the world. The entry of China into the World Trade Organisation (WTO) is expected to accelerate the trend. Although often well established in China before WTO entry, the world s large vehicle manufacturers have responded to Chinese WTO membership by establishing additional joint ventures and new assembly plants and by the launch of new models.

2 This Study analyses the Chinese Automotive market prior to WTO entry and forecasts future market trends as impacted by China s recent entry into the WTO. 1 Correspondence to: Dr. Lindsay Smyrk Victoria University VIC., AUSTRALIA Email: Ph: +613 9688 4427 Qiu, , Turner, L., & Smyrk,L., A Study of Changes in the Chinese Automotive Market Resulting from WTO Entry . 1 Proceedings of the 15th Annual conference of the Association for Chinese Economics Studies Australia (ACESA) 1. Introduction China s WTO entry has significantly impacted on the Chinese automobile market. The market for automobiles within China has become more transparent and standardized and more like many other Automotive markets in WTO member countries.

3 In particular, Chinese law and regulations relating to the automobile market have become more internationalized. In order to fulfil future WTO commitments there will be a need for the Chinese authorities to reduce automobile tariffs and open the market to foreign competition. Consequently, foreign automobile investors have been investing heavily in the Chinese automobile market urged on by China s high economic growth. The Chinese Automotive market grew rapidly from December 2001 (the time of China s WTO entry) over 2002, a growth that has been described as gushing sales . The Chinese people s passion for cars has gathered speed with total vehicle sales reaching million in 2002 (up 1 million over 2001), a surge of 37%.

4 In the first half of 2003, vehicle sales were million and are expected to top 4 million by the end of the year 2003. The Internationale Nederlanden Group (ING) has forecast that the China auto industry will grow by 47% in 2004. The Chinese automobile market has become the second largest in the Asia Pacific region, ahead of South Korea and just behind Japan. (Shanghai Stock Newspaper, Jan. 23, 2003). How much of this trend has been the result of WTO entry? What Changes have occurred since WTO that might not have occurred without entry? This paper uses a forecasting methodology to compare what could have occurred in the Chine Automotive industry without entry against projections of automobile production after entry.

5 Before conducting this analysis however, it is necessary to discuss the long historical/political background to the current structure. This discussion occurs in the following sector. Qiu, , Turner, L., & Smyrk,L., A Study of Changes in the Chinese Automotive Market Resulting from WTO Entry . 2 Proceedings of the 15th Annual conference of the Association for Chinese Economics Studies Australia (ACESA) 2. Background China is one of the largest potential vehicle markets in the world with a billion population and an extensive road system. In addition, China s economic growth has been very rapid over the last decade with an average growth rate of from 1989 2002.

6 China s GDP reached US$1,080 billion in 2000, ahead of Italy, making it the sixth largest economy in the world while GDP per capita reached US$ 963 (Twenty-first Century Chinese News, August 21, 2002, ) Notwithstanding, the vehicle population is relatively low on world standards with vehicles per thousand people. In Japan the figure is 500 vehicles per thousand people, or 37 times higher than China, whilst in South Korea ownership is 17 times higher than China (Table 1). Table 1: Vehicle Ownership in Asia Pacific Countries Country Population (in million) GDP Growth% 2002 GDP Per capita US$ Total Vehicles (in 000)

7 Vehicles /1000 people Japan 127,400 31,368 72,254 567 Korea 47,800 9,725 13,353 279 India 1,052,000 462 10,278 Australia 19,800 20,086 12,362 624 Malaysia 24,300 3,915 5,612 231 Thailand 62,900 2,000 6,012 95 Philippines 78,400 1,006 2,346 30 Indonesia 217,000 838 6,083 28 China 1,290,000 963 22,352 Source.

8 Asian Automotive Industry Forecast Report, Global Insight, April 2003 Qiu, , Turner, L., & Smyrk,L., A Study of Changes in the Chinese Automotive Market Resulting from WTO Entry . 3 Proceedings of the 15th Annual conference of the Association for Chinese Economics Studies Australia (ACESA) 3. Automobile Industry Policy in the People s Republic of China 1956-2009 The First Phase 1956-1987 The Chinese Automotive industry began life as a minor component of China s First Five Year Plan (1953-1957). The first Chinese produced automobile was a medium sized truck that rolled off the line in 1956 from the First Auto Works in Changchin, capital of Jilan Province.

9 For the next thirty odd years the sector did little but remain as a token presence in the Chinese industrial landscape. For most of these years the industry was slow developing with total vehicle output remaining below half a million units a year until the 1980s (Murray, 1994). Further the industry produced only medium-sized trucks. There was neither a directive nor indeed the capacity to produce either light or heavy trucks, whilst the mass production of an indigenous passenger motor vehicle was completely off the agenda. The explanation for the lack of development of the sector over the period lies in the priorities of the essentially centrally directed economy and the economic realities of the time.

10 The main concern in the immediate post liberation (1949) phase was that of land reform and economic recovery to set the conditions for subsequent economic growth. The ensuing First Five -Year Plan saw great emphasis placed on the development and growth of heavy industry. Further, economic realism as applied to the transportation sector, ensured as noted by Lin Wei and A. Chao, (1982), that emphasis was placed on bicycle (not motor vehicle), production with bicycle output rising from 80,000 per annum in 1952 to 806,000 per annum by 1957. The turmoil of the Great Leap Forward (1958-1960), the Readjustment and Recovery Phase (1961-1968), the instability of the Cultural Revolution (1966-1976) and the Transition of Power stage that followed the death of both Mao Zedong and Zhou Enlai in 1976 all ensured that economic priority where possible, was assigned to agricultural reform and the promotion of heavy and medium industry.


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