ZHANG Xiaoyu: No Foam in Sight in China’s Auto Industry

Recently, at the dealers meeting of Gonow Automobile & the fifth Huadu Forum, ZHANG Xiaoyu, Vice Chairman of China Machinery Industry Federation (CMIF) and Director-in-General of Society of Automotive Engineers of China (SAE-China) addressed the audiences and shared his view on whether China’s auto industry is getting frothy.

 

 The dealers meeting of Gonow Automobile

At the beginning of his speech, ZHANG pointed out China’s auto industry has undergone significant changes under the guidance of the central government after the entry of the new century.

First, the passenger cars has been quickly making their way into thousands of ordinary Chinese families, which has helped China’s private car ownership on a steady increase and spurred the robust growth of the overall auto industry.

 

ZHANG Xiaoyu speaks at the meeting

Second, the fixed assets of the auto industry have been expanding exponentially. During the tenth “Five-Year Plan”, China’s auto industry made an investment in fixed assets totaling RMB 235 billion (about USD 34.3832 billion), larger than the total of the past twenty years combined. Since 2006, the annual fixed assets investment in the sector has surpassed RMB 100 billion (about USD 14.6314 billion). If the trend continues, it is expected that China’s total investments in auto industry during the eleventh “Five-Year Plan” which will end next year will approach a whopping RMB 500 billion (about USD 73.1572 billion).

Third, a more open market has embraced a diversified capital structure in China’s auto industry. Till now, state-owned enterprises (SOE), joint ventures (JV) set up by multinationals, and private-owned enterprises respectively hold one third of China’s auto market.
Fourth, indigenous enterprises are quite energetic, which plays a key role in boosting the overall growth of the industry. Take the commercial sector for example, over 85% of China’s CV market is dominated by domestic businesses with independent IPR and products. In the passenger car sector, about one quarter of players are entirely local Chinese brands. Since the onset of the new century, self-development and self innovation have become the mainstream of China’s auto industry.

When it comes to the question of whether any froth has been created along with the continued dynamic growth of China’s auto industry, ZHANG denied any froth at present by listing four reasons. 

First of all, as a pillar industry in China’s national economy, the automobile sector is now striving for building itself from a big one to a strong one. “Out of the RMB 100 billion fixed assets investments in recent years, over 90% came from auto makers themselves. From this, it can be seen that China’s auto industry is developing in a sound manner as it does not heavily depend on the financial institutions,” ZHANG remarked.

In terms of auto consumption, less than 10% of China’s annual auto sales are financed by bank loans at present despite the government’s efforts to make the loans easier to come by for consumers. The scenario is quite different from that in America. Given this, any remark of the foam in China’s auto industry is groundless.

Thirdly, China’s annual export volume of automobiles account less than one tenth of the nation’s total production volume each year. In this perspective, the domestic auto industry can still manage to grow even though the international market is still in the doldrums now.
Fourthly, China’s vehicles are priced at a reasonable level, which clearly shows that the whole sector is now on a real solid growth.
At last, ZHANG pointed out that the backbone enterprises of China’s auto industry have been chiefly focused on their main business. None of them has ever been engaged in any speculative activities or involved in financial derivatives in the capital market.

Given above, ZHANG firmly believes that China’s auto industry is on a solid footing at present and will grow increasingly stronger in the years to come.

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