Unit 3 Trade in Goods
After the accession to the WTO, China’s trade in goods has come to assume the following features: first, the development of trade in goods has driven the rapid economic growth of the country; second, the share of collective and private-owned enterprises in trade in goods is rapidly increasing; third, the share of processing trade in China’s trade in goods in terms of transaction volume has reached beyond 50%, which is helpful for the country to increase job opportunities and fill the gap of resource supply in the country; and finally, trade conflicts have increased in scale, spread to more fields, and developed in all aspects.
Chapter 12 The Automotive Industry
In the first few years after China’s accession to the WTO, the impact of decreased automotive tariff and increased import quota on the domestic automotive industry was scarcely visible. On the contrary, thanks to the development of national economy and the improvement of people’s life, the auto market, especially the passenger car sector, experienced a dramatic growth from 2002 to 2003. However, the impact is growing as China continues to fulfill its WTO commitments. For example, China lowered its automotive tariff to 34.2% in 2004, 4 percentage points down from that in 2003. At the same time, the import quota for automobiles and key automotive components has increased to $10,494 million. In 2005, the tariff rate is expected to decrease further to 30.2% and the import quota restriction will be totally lifted. The implementation of relevant policies and the further fulfillment of commitments have dealt an obvious negative impact on the auto market.
From January to November 2004, revenues of the automotive industry in Shanghai totaled RMB 124,011 million, 3.8% lower than those for the same period in the previous year, and the accumulated profits totaled RMB 19,337 million, representing a 6.4% year-on-year decline.
I. Fulfillment of WTO Commitments and the Impact
1. Starting in early 2004, the prices of imported automobiles have continued to fall. The prices of imported BMW, Benz or even Camry have dropped by 20% on average.
2. Potential customers expect a dramatic drop in the auto prices as import quota has a significant effect on the prices of imported automobiles.
3. The expectation for the prices of imported automobiles to fall affects customer judgment on fair imported automobile prices, so even more potential customers have chosen to wait.
All this has depressed the passenger car market that was exciting in the past two years. In 2004, the passenger car market showed a dramatic decline in growth. The sales turned downward in May, and leveled off in the following months. In September and October, the market even reported a negative growth in the annual term, as the benchmark sales volume of passenger cars was too big. The number of passenger cars produced from January to October this year totals 2,040,000 units, an 11.9% increase over the same period of the previous year. The production of sedan cars reaches 1,820,000 units, 11.9% more than in the same period of the previous year. A total of 2,023,000 passenger cars have been sold during this period, representing a 16.0% year-on-year growth, and the sales of sedan cars in particular amount to 1,808,000 units, marking a year-on-year growth of 15.6% which was obviously lower than the annual growth of either 2002 or 2003. The total number of domestically produced passenger cars is estimated at about 2,450,000 units, growing by 10% on a yearly basis.
II. Counter Measures of the Automotive Industry of Shanghai
In the face of ever more bitter challenges after China’s accession to the WTO, the automotive industry of Shanghai, led by SAIC, is formulating and implementing various proactive countermeasures.
1. The auto industry of Shanghai has been endeavoring to enhance the competitive capabilities of its enterprises, and encourage them to explore and exploit both the domestic and the overseas markets. Component businesses, in particular, have gained considerable research and development capabilities from the experience of supplying supplementary parts and components over the years, and their products have become much more competitive. In the export market, they have upgraded their business from traditional after-sales services to OEM supply to overseas car makers. The range of whole cars for export is wider than ever, and major producers, including Shanghai Volkswagen, Shanghai General Motors, SGM-Wuling and SAIC Yizheng, have all started to export their products.
2. The auto industry of Shanghai has continued to strengthen its capabilities in terms of products, technology and management. This year, for example, SAIC has introduced two new models and upgraded many existing models, which has helped the enterprise to better meet the demand of the market and the demand for market competition.
3. The auto industry of Shanghai has made every effort to increase the width as well as the length of its business chain, striving to create new growth points in services such as auto finance and produce service with the view that a balance between production and service in business strategy will help the enterprises better accommodate the latest industry trend.
III. Prospects of the Automotive Industry of Shanghai in 2005
1. Impact on the import of whole cars is limited.
China will cut the tariff for imported cars down to 30.2% and lift all quotas restrictions in 2005 in accordance with its WTO commitments. The prices of imported cars, however, are subject to a lot more factors such as foreign exchange rate, supply and demand, and domestically produced substitutes, and have yet to be determined.
2. Impact on car prices is limited.
This year, the prices of domestically produced cars have fallen by over 10% on average and basically reached the international standard. The prices of mainstream economy sedan cars have even fallen below the international level. At present, the prices of imported cars are composed of CIF, custom duty, excise, VAT and dealer expenses. It’s expected that the custom duty of imported cars will fall by only 5.9% in 2005 and, as the custom duty represents only a minor part of the car prices, this fall won’t make any difference to their prices as custom duty. Provided that the foreign exchange rate remains stable, the elimination of import quota restrictions will deal only a limited impact on the prices of imported whole cars.
3. Domestic products are competitive in quality.
Major car producers in the country are Sino-foreign joint ventures or otherwise have introduced advanced technologies from overseas. They have greatly improved their product quality amidst ever more intense market competition. Some of them have started to export whole cars that boast competitive advantages over international counterparts.
4. Policies and their implementation remain uncertain.
In the first place, although the market for imported cars expect a relief from all its pressures and burdens since custom duties have been cut down and, especially, the import quota has been lifted, there still exist many factors that will affect the smoothness of actual operation.
Secondly, the stipulations of the national Automotive Industry Policy regarding the features of imported cars imply a requirement for the localization of parts and components of automobiles to be sold in the country. The implementation of the Policy determines the future of domestic component businesses.
To sum up, the market demand for cars in 2004 has brought about changes to the pattern of the automotive industry in China and, as relevant policies continue to be issued and implemented in 2005, imported automotive products will push forward the changes in the automotive industry.