Financial Daily from THE HINDU group of publications
Friday, Dec 09, 2005


News
Features
Stocks
Shipping
Archives
Google

Group Sites

Industry & Economy - Automobiles
Marketing - Insight


China's auto sector set to enter critical phase

Our Bureau

`Vehicle sales already at 4.69 million units by October-end should close 2005 at 5.8 million units, making China the world's second biggest automobile market.'

New Delhi , Dec. 8

THE Chinese market, for some time now the growth engine of the global automobile industry, is poised to enter that critical phase identified with sustained long-term growth in the traditional development cycle of automobile markets, a senior economist from that country's State Information Centre has said.

His comments came against the backdrop of the recent slowdown in Chinese automobile sales after a period of intense growth in 2002 and 2003.

From 1.45 million vehicles sold in 1996, the market size zoomed to 5.20 million units in 2004.

Growth factors: The growth was powered by lower car prices following China's entry into the WTO (the price of a prominent model, the Century Star, fell from 271,800 yuan in 2001 to 186,900 yuan by 2003), rise in disbursement of automobile loans (it went up from 40 billion yuan in 2001 to 140 billion yuan by 2002) and the economy itself moving into a bullish phase.

However, sales correction began to set in by 2004, largely due to state policy that shifted the thrust in macro economic growth from a rapid pace to a more sustained one.

Alongside were the issues of irregular price drops and cancellation of vehicle import quotas, plus a tighter flow of bank credit for vehicle purchases.

These measures had started to bite by July 2004 bringing with it a lower growth rate in vehicle sales and a preference for smaller cars.

Despite this, Mr Xu Changming, Director & Senior Economist (Business Consulting Centre), State Information Centre, said vehicle sales already at 4.69 million units by October-end should close 2005 at 5.8 million units, making China the world's second biggest automobile market.

Over 2000-2005 the market would thus have grown at an average of 22 per cent against the 9.5 per cent it enjoyed during 1996-2000.

Sale of passenger vehicle (sedans, SUVs and MPVs) for January-October 2005 was pegged at 2.53 million.

Mr Changming was speaking at the Tenth Asia Pacific Automotive Industry Roundtable organised by Economist Conferences.

R-value: His estimation was that passenger vehicle growth rate should be 1.5 to 2 times that of GDP growth rate and for the next five years China's GDP growth rate was projected to be 8-9 per cent.

But a more relevant index and the one cited to calculate the trigger point for automobile sales growth, he said, was `R-value,' which is the outcome of dividing passenger vehicle price by per capital GDP.

Historically the trigger for sales has been an R-value of 2 to 3, which was when large numbers of passenger vehicles usually got bought by families, their popularity gained and the overall market thus moved into a powerful growth phase.

"Japan registered an R-value of 2 in the 60s. Korea reached that stage in the 80s,'' he said. Calculations showed that in the four Chinese regions accounting for the country's highest automobile sales - Shenzen, Beijing, Guangzhou and Shanghai - the R-value was already approaching 3.

This would decline further because vehicle prices would continue to drop while per capita GDP would increase.

Mr Changming believed that R-value for China as a whole, which was 27.2 in 2000 and 15.3 in 2004, would dip to 3 by 2009. But even without the entire country needing to touch that level of R-value, there was a population of 247 million available as market in China's six most developed provinces. "That means, prospects for auto sales should be bright,'' he said.

He said the period of 20 years beginning from five years ahead of China's projected encounter with an R-value of 3 and the 15 years thereafter would be a time of strong and sustained growth for its automobile market.

His forecast for 2010 was a vehicle market size of 8.7 million units, passenger vehicles accounting for 55.9 per cent of that. He did not, however, explore the likely impact to the market from China's tax structure and the accumulated bad debt in its banks.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

More Stories on : Automobiles | Insight



Stories in this Section
BPO job registry to be released soon


`Fanoos' slows down, but sticks to charted course
China's auto sector set to enter critical phase
Ensuring sustained development in a democracy not an easy task: PM
Bihar to seek `special category' status
CII marketing green industrial park in Jadcherla
Kamal Nath to discuss Asean-India FTA today
Advanced training for eye surgery
Bengal to seek PwC advice for transport sector restructure
LPG shortage largely under control: Aiyar
`Iran-Pak-India pipeline project on track'
Bitter medicine beneath the sugar-coated diplomacy
Centre tries hi-tech initiative to monitor power stations
Power regulator pulls up GAIL, ONGC
SSIs invited to Paris fair
Advanced degree H-1B visas likely to dry up soon
Govt responsible for CAS failure, says House panel
Hyderabad school wins award
IPE students get quiz prize
Dubai Gold hopes to raise sales 25 pc in shopping fest
Spot gold may correct lower
FAPCCI plea to withdraw FBT
BMW looking to source components from India — Signs pact with TN for CKD plant
Speed - a point in TN's favour
Signature campaign
Schemes for poor to be linked in Kerala
World Bank plans to make coal institute a centre of excellence
Seed producers chalk out plan to discourage child labour
ICAI southern regional meet in Kochi from today
Chamber plans event series in Thiruvananthapuram
Meet on `Kerala Studies'
KSINC's first houseboat ready
Adesh Gupta is FDDI Chairman


The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | The Hindu eBooks | The Hindu Images | Home |

Copyright 2005, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line