China Auto Sector is Booming

China Auto Sector is Booming

The automotive industry in China has been the largest in the world measured by automobile unit production since 2008. Since 2009, annual production of automobiles in China exceeds that of the European Union or that of the United States and Japan combined.

On Tuesday, three Chinese government departments, including the Ministry of Industry and Information Technology, released an auto industry development plan to turn the country into a world leader within a decade.

The government plan sees annual production up to around 30 million vehicles by 2020 and 35 million by 2025.

Car sales in the country hit a record 28.03 million in 2016, up 13.7 percent year on year.

China aims to achieve a breakthrough in the major technologies, with the development of new energy vehicles (NEVs) and relax restrictions on foreign ownership of manufacturing.

In 2009, the Chinese government launched its NEV program to produce vehicles that are partially or fully powered by electricity, such as battery electric vehicles (BEVs) and plug-in hybrids (PHEVs).

The country’s annual NEV production and sales are expected to hit two million by 2020. For two straight years, China has been the biggest market for NEVs with 507,000 sold last year, up 53 percent from 2015.

Regarding the new plan, restrictions on foreign ownership in the country’s joint-venture carmakers will be relaxed “in an orderly manner.” At the moment, Beijing caps foreign stakes in joint ventures in the domestic auto industry at 50 percent.

Last month, Chinese state-owned automaker SAIC Motor began talks with three Indian states to start manufacturing there. The carmaker reportedly plans to enter the Indian market with vehicles produced under the former UK brand MG Motor.

China’s automobile industry had mainly Soviet origins (plants and licensed auto design were founded in 1950s, with the help of USSR) and had small volume for the first 30 years of the republic, not exceeding 100–200 thousands per year. Since the early 1990s, it has developed rapidly. China’s annual automobile production capacity first exceeded one million in 1992. By 2000, China was producing over two million vehicles. After China’s entry into the World Trade Organization (WTO) in 2001, the development of the automobile market accelerated further. Between 2002 and 2007, China’s national automobile market grew by an average 21 percent, or one million vehicles year-on-year. In 2009, China produced 13.79 million automobiles, of which 8 million were passenger cars and 3.41 million were commercial vehicles and surpassed the United States as the world’s largest automobile producer by volume. In 2010, both sales and production topped 18 million units, with 13.76 million passenger cars delivered, in each case the largest by any nation in history.[8] In 2014, total vehicles production in China reached 23.720 million, accounting for 26% of global automotive production.

The number of registered cars, buses, vans, and trucks on the road in China reached 62 million in 2009, and is expected to exceed 200 million by 2020. The consultancy McKinsey & Company estimates that China’s car market will grow tenfold between 2005 and 2030.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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