The role of China in the automotive industry

05/05/2020

Posted by: Testimony Olajire

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China is a big name in the automotive world. A problem in China will somehow affect the rest of the world, especially in a crisis like COVID-19.

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Ever since 2008, China has been widely and popularly known as the world’s largest automotive and vehicle manufacturing country. The export value of China amounts to about 50 billion dollars and with the contribution of the automobile sector to China’s GDP, the Chinese automation sector is regarded as the pillar industry and the global leader of automotive industries in the automation world.

Their rapid growth in the automotive industry since the 1990s plays an increasingly important role in the global automotive markets. As of 2018, China accounted for about 30% of the global car sales, about 28 million cars were sold. The United States, Japan, South Korea, and other countries involved in automobile production, imports huge quantities of their cars, car parts, machinery, and equipment from China.

Chinese-car-companies

List of Chinese auto brands

China’s role in the auto industry can be summarized into two:

  • Assembly of cars
  • Market for cars and Export of car parts

Assembly of Cars

There are several car manufacturers in China which include the Big 4 domestic car manufacturers: SAIC motors, FAW, Dong Feng, and Chang’an. Others are Brilliance automotive, Beijing automotive, Guangzhou automobile group, and Jianghuai (JAC). In 2010, China became the largest market for cars over the USA, with quite a notable number of automotive manufacturers both domestic and foreign.

Chinese-car-market-analysis

Volkswagen is a major player in the Chinese car market

There are several automobile manufacturing companies that are in joint ventures with China’s automotive manufacturing industry. These foreign joint-ventures assemble their cars in China and also get their car parts, machinery, and equipment from China supplied by domestic parts manufacturers producing vehicles meeting the world’s standards. Some are BMW(Germany), Fiat(Italy), Ford(US), General Motors(US), Honda (Japan), Hyundai  (South Korea), and of course the German company, Mercedes. There are many more!

>>> Read more about COVID-19 advisory: Riding an Uber or any other ride-hailing services safely

Market for cars and Export of Car parts

When you have 1.3 billion people in a country, well, there is a ready market for cars! They also have the manpower to manufacture and export car parts to other countries.

In China, the automotive market is largely dominated by foreign car producers. There are mainly two structures for automotive companies to operate in China.

  • The first one is the structure that allows foreign automotive companies to partner with either Chinese state-owned companies or privately owned automotive companies. Through this structure, foreign automotive makers mostly from the US, Japan, South Korea, and Europe make their brands localized and share profits made with their joint venture partners.
  • The second structure is the wholly foreign-owned enterprise (WFOE) model which involves and affords foreign automotive parts manufacturers and import companies, to have full autonomy, establish and own subsidiaries in China without Chinese partners.

Some notable car manufactures in China as well as their joint venture partners include:

  • The Shanghai Automotive Industry Corporation (SAIC) is state-owned but in a venture with the United States-based General Motors. SAIC had the largest production volume of automobiles in 2017making more than 6.9 million vehicles. SAIC products produced with its joint venture partners are sold under marques such as Buick, Chevrolet, Volkswagen.
  • Chang’an Automobile Manufacturing Company is popular for its joint venture with Ford Motor Company and Mazda
  • FAW Group Corporation is state-owned; FAW produces and sells its products under at least 10 different brands and its joint ventures include Toyota, Audi, General Motors.
  • Dong Feng Motor Corporation is a state-owned automobile manufacturing company and its joint ventures include Nissan, Honda, Renault, Cummins, Peugeot Citroen, Infiniti, Kia
  • BAIC is state-owned and it’s in a joint venture with Mercedes-Benz, Hyundai.
  • Guangzhou Automobile Group (GAC) is popularly known for its joint venture with Honda, Fiat, Isuzu, Toyota, Mitsubishi.
  • Great Wall is known as the largest manufacturers of SUVs, Pick-up Trucks, and Sport Utility Vehicles.
  • BYD is popularly known for its batteries and electric buses all over the world.
  • Geely is the largest privately owned automobile manufacturer as well as the 7th overall biggest manufacturer in China and they are known for their luxury brand Volvo.

COVID-19 and its effect on the auto industry in China and the entire World

According to the data from China Passenger Car Association (CPCA), between January and March this year 2020, China’s automotive industry has taken a downturn of about $1.7 million as car sales fell about 92% just in the first half of February.

china-and-covid-19

China was affected by Covid-19, the entire world became affected too

The global automotive industry has taken a hit as a result of the effect of COVID-19.  As China is the largest automobile manufacturing country, the Chinese automotive industry and several other regional markets closely tied to China are also experiencing huge negative impacts due to COVID-19. There have been disruptions in the production, manufacturing, supply, and demand chain operations in China’s automobile industry.

  • Wuhan is referred to as the ‘motor city’- the city at the center of the outbreak of COVID-19 and the city accounts for up to 50% of total production in China and produced up to 2.24 million vehicles.
  • The effect of the epidemic is massive, as car sales in China plummeted at least 80% as at February 2020 and as a result of the nationwide shutdown, public movement restrictions, health concern of employees, labor shortages, factory operating restrictions and closures, China’s automotive industry has been largely affected.

china-and-covid-19

The Coronavirus Pandemic is crippling the global automotive industry

  • The interruption of China’s closed factories has caused several automobile companies and markets including Japan, Germany, South Korea, the US, Italy, and the UK to suspend or abruptly stop their production and manufacturing automobile operations. Japan and South Korea were the first to feel the huge impact of car parts shortages, as China has been their automotive component suppliers. Car production around the world is stalled due to a shortage of supplies from China.
  • Most workers are at home due to the quarantine which has influenced work stoppages. There is a weakened demand for vehicles as the epidemic prevented people from going to car dealerships and automakers suspend their operations until the demand for vehicles increases.
  • Even the businessmen and consumers are hesitant to spend or make any demand for non-essential goods such as cars but, would rather spend on essential commodities only such as foodstuffs due to the lockdown. The demand for automobiles has drastically reduced and sales have fallen.
  • With China’s automotive production and manufacturing industry operations being disrupted, the global automotive manufacturing industry is also affected due to China’s high level of impact in the global automotive supply chain.

See more details on how COVID-19 affected the automobile industry in Asia below:

Video: China coronavirus car industry

Conclusion

Now, China seeks ways to upgrade and radically improve its automation, automotive industrial base, structure, and dynamics including digitalization, logistics and supply chain management, which will surely enhance the role of China in the automotive industry. Their focus is on recovery and rebuilding the sectors of their economy including the automotive manufacturing sector and ensuring normal procession of economic activities, production operations, and normal lifestyles.

>>> Visit Naijauto.com every day to get the latest updates on the car industry!

>>> Other topics: Car tips and advice, Car prices, Car reviews, and Cars for sale!

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Testimony Olajire

Testimony Olajire

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Testimony Olajire is a witty and innovative content writer with Naijauto.com. He creates top quality educative content on automobiles that readers can both relate with and enjoy. He has a keen interest in understanding what lies under the hood of any car, practical driving and safety tips, automobile history and managing automobile-related businesses; all in the Nigerian context.   

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