China poised to impact global automotive industry

China's automotive industry is poised to have a major impact on the global automotive market, providing it can resolve some critical issues, according to a new Ernst & Young report, "China's automotive sector—at the crossroads," launched today at The Second China Automotive Industry Roundtable in Shanghai, hosted by Economist Conferences.

"Vehicle sales over the last 10 years have proven that China is a huge automotive market," said Mike Hanley, Global Director of Ernst & Young's Automotive Practice. "And now with continued governmental support, Chinese vehicle manufacturers are determined to become serious competitors in the global marketplace."

The report features findings of research undertaken amongst senior executives of domestic and foreign automotive companies. The main findings are:

• The Chinese government is not about to loosen its grip on the industry, and will continue with its strategy of supporting Chinese-owned automotive companies.
• The size and potential of the Chinese automotive market will continue to attract inbound investment, despite concerns of overcapacity. Those who select and implement the most appropriate strategy will succeed.
• The Chinese automotive industry continues to be the subject of regulation. Foreign companies will continue to have to operate through joint ventures, but commercial forces will put pressure on these arrangements.
• Concerns over excess capacity in China are probably overblown, mainly because they assume that all planned capacity will actually be built. However, we will see a competitive shake out as a result of poor investment plans and excessively optimistic assumptions about sales.
• China has started exporting cars, but export volumes will rise only gradually due to low quality levels amongst domestic producers, lack of infrastructure, and the reluctance of foreign companies to export from China.
• Particularly, exports of Chinese-made components will rise more quickly and have the potential to change the structure of the global industry.

Hanley highlighted the importance of recognizing the implications of these factors, and the need to monitor and review them regularly, "The ownership and control structures of domestic automotive companies gradually will become more transparent. As a result, foreign companies will have the opportunity to strengthen relations with their domestic Chinese partners."