Automechanika China returns to Beijing with great opportunities in China's auto market

"China has the world's highest economic growth rate and is now the world's third-largest automotive sales market, but it is without question the world's single most important automotive market," said Delphi's Chairman and Chief Executive JT Battenberg III.

To provide the right platform for the auto parts and equipment industry players to penetrate the fast growing China automotive market, Messe Frankfurt HK Ltd. organizes Automechanika China and Automechanika Shanghai in Beijing and Shanghai in alternate years. Our coming Automechanika China 05 will be held on 23 - 25 November 2005 in Beijing. It continues to have the international support from ASA, EGEA, ZDK and AAIA.

China¡¦s vehicle and component imports rose by 29% year-on-year to a value of US$8.7 billion. China¡¦s aftermarket scale is expected to reach US$23 billion in 2010, the second largest in Asia after Japan. The recent slight slowdown under macro control policy only provides a good opportunity for restructuring of the industry. Many factors such as the rapid expansion of the luxury market, easy access to auto finance, tighter emission standards, and more open market is still driving the demand for advanced parts and equipment. The industry is in urgent need of foreign investment and technology. The China Auto Market Flash is enclosed to give you the news about the positive development.

Also linked up is the final report of Automechanika Shanghai 05 held on 2 - 4 December 2004. Its debut in Shanghai has drawn 9,138 trade visitors with about 1,400 overseas visitors from 60 countries. With the participation of 235 exhibitors including official pavilions from Austria, Germany, Slovenia, Torsion (Italy) and Taiwan (China), Automechanika Shanghai has become the most international event specializing in automotive parts and equipment in China.

Besides, our fringe programmes like Automechanika Matchmaking Forum, Automechanika Academy and CBU Conference were greatly valued by our exhibitors as high quality events to gather professionals. Similar programmes will again add value to the coming Automechanika China 05. We will offer early bird benefits for participation in Automechanika China 05 before 15 March 2005. If you are interested in further information of our coming Automechanika fairs in China, please send back the reply coupon in the Market Flash.

Wishing you a coming prosperous new year!

Yours Sincerely,

With GDP surpassing US$1.33 trillion in 2003, China has become the world's sixth largest economy. Growth remained strong & steady in the first nine months of 2004, rising 9.5% year-on-year.

The auto industry has become one of the biggest growth engines for China's gross domestic product (GDP), which is expected to reach US$4,000 billion by 2020. Sales income of the auto industry, which has a total work force of more than 12 million, and closelyrelated sectors, reached US$82 billion in 2003.

The macro economic control policy caused a slight slowdown in vehicle sales in China in 2004, but this will provide a good opportunity for a much-needed restructuring of the industry. Consumer credit ratings will be systemized, mergers and acquisitions will accelerate, and more and more auto-makers will expand capacity, introduce new products to the market and enhance their sales & distribution networks.

Foreign investment in the Chinese auto sector totals more that US$20 billion at present. In June 2004, Reuters reported that multinationals plan to spend a further US$13 billion to build capacity to make six million cars annually over the next few years.

At present, there are more than 1,000 whollyowned foreign auto companies operating in China, with market leaders - including GM, Ford, DaimlerChrysler, Toyota, VW, Nissan, Renault, Peugeot Citroen, BMW, Honda, and Hyundai - all having their own production plants in the country.

·	GM has announced that it will move its Asia Pacific headquarters from Singapore to Shanghai by the end of 2005.
·	Volkswagen plans to invest over US$7 billion and increase its annual production capacity to 1.6 million cars by 2008.
·	Toyota and Guangzhou Automobile recently launched a 50/50 joint venture in Guangzhou with a total investment of over US$461 million.

China has pledged to gradually lower import tariffs on automobiles until 1 July 2006 when tariffs for imported automobiles are reduced to 25% and those for auto parts and components to 10%.

China imported over 136,000 automobiles in the first nine months of 2004, up 5% from the same period a year ago. Import of cars and offroad vehicles during the period were 88,598 and 26,714 units, taking up a combined 84.3% of the total, with the rest being buses, trucks and special-purpose vehicles.

Import value of automobiles, key components and parts reached $12.938 billion, up 21% year-on-year.

Automobile sales in Beijing in the first nine months of 2004 reached 341,000 units, up 25% from the same period of last year, according to statistics released by the city's Statistical Bureau on 14 October. Sales of new vehicles reached 237,000 units, up 23%.

Beijing's motor vehicle parc has reached 2.24 million units by the end of August 2004, including 1.49 million privately owned, according to statistics released by the city's Traffic Administration Bureau on 16 September 2004.

DaimlerChrysler has received Chinese government approval for vehicle-building joint ventures, and locally made Mercedes- Benz cars should start rolling off assembly lines at a new plant outside Beijing in mid- 2005. DaimlerChrysler's venture with Beijing Automotive Industry Holding Co Ltd (BAIC) aims to build up annual production capacity to as many as 25,000 C-and E-class Mercedes cars in the medium term. The German- American company also plans to make around 40,000 Sprinters and Viano/Vito vans from 2006 with partners China Motor Corp and Fujian Motor Industry Group.

China has grown to be the fourth largest auto producer and third largest auto consumer in the world in 2004. Sales in 2004 are expected to total over 5.5 million units by year end. Should the current momentum be sustained over the next five to six years, China's auto output and consumption will be second only to that of the USA by 2010, says Zhang Guobao, Deputy Director of the National Development & Reform Commission of China.

China has already built a 30,000km network of highways, the second longest in the world. Over 140 million vehicles are expected to be on these roads by 2020, seven times more than 2004!

The rapid expansion of China's car market, especially in the luxury car sector, has attracted the attention of the world's leading carmakers.

Last year, BMW sold close to 20,000 cars in China, of which 7,000 were the 7-series. Toyota sold 4,000 units of the Lexus. The rising demand as well as high profit margins in the luxury sector have prompted new investments.

BMW has already started to assemble the 3- and 5-series locally. Mercedes- Benz is into full preparation for the launch of its E-series to be assembled in Beijing, and GM has been approved to assemble the Cadillac at its joint venture in Shanghai.

Ford, Toyota, Volkswagen and many others are poised to launch their luxury models soon, and multinational auto-makers are bringing luxury models into China for local assembly. Analysts estimate the luxury sector takes up 5% of China's market, versus more than a tenth in the United States. "We believe China has the potential to be the top luxury car market in the world," said Toyota's senior managing director Akio Toyoda in June 2004.

The macro economic control policy caused a slight China exported US$3.5 billion of vehicles and components during the first half of 2004, jumping 62.2% from a year earlier. Meanwhile, China's vehicle and component imports rose by 29% year-on-year to a value of US$8.7 billion. Boosting vehicle and spare parts exports will help attract further foreign investment, accelerate restructuring and technical innovations in China's fragmented auto industry, and consolidate the nation's position as a vehicle and spare parts manufacturing base in Asia.

Beijing is not only the largest regional consumer market for auto parts in China, but is also the largest distribution centre for auto parts in northern China. It boasts some 20,000 large and small auto parts shops, with an annual turnover totaling over US$359 million in 2002.

There are many auto part marts in Beijing, the largest and most reputable being Siyuanqiao, Xijiao and Shilihe, with the number of visitors topping 6,000 daily, or 180,000 a month, for each venue. There are over 2,000 shops at Beijing's three major auto parts markets.

According to an estimate by market researcher Roland Berger, China's aftermarket scale is expected to reach RMB190 billion in 2010, the second largest in Asia after Japan.

China's production of passenger and heavyduty tires will reach 100 million pieces in 2020, with a rubber consumption of 7.5 million tons, taking up 35 - 40% percent of the international total.

China has become the second largest consumer of auto lubricant after the U.S., according to a report in People's Daily. China's lubricant consumption last year reached four million tons with sales revenue of over RMB30 billion, surpassing Russia.

More and more consumers are able to buy private cars as credit and loans for auto purchase become more widely accessible in the marketplace.

Shanghai-Volkswagen and the Shanghai Branch of the Industrial and Commerce Bank of China (ICBC) recently signed an agreement for the provision of auto financing services by ICBC Shanghai branch to Shanghai- Volkswagen's customers.

The Volkswagen Automotive Financing (China) Co., Ltd. officially opened for business on 8 September 2004 and signed the first automotive loan contract provided by an automotive financing company in Beijing.

SAIC-GM Automobile Finance Co., Ltd., a joint venture financing company between General Motors Acceptance Corp. (GMAC) and Shanghai Automotive Group Finance Co., Ltd. received permission from the China Banking Regulatory Commission (CBRC) on 5 August 2004 to open for business, according to a GMAC announcement. At the end of last year, SAIC-GM Automobile Finance, Toyota Motor Finance (China) and Volkswagen Automobile Finance (China) received approvals from CBRC to set up finance companies.

Ford Motor Co.'s credit division received initial approval to provide auto financing in China from the China Banking Regulatory Commission in August 2004.

China began implementing the second-phase emission standard (National II, equivalent to Euro II emission standard) for light vehicles on 1 July 2004, and is soon to implement a new automobile emissions standard equivalent of the Euro II emission standard. Preparations are underway to draft relevant standards equivalent of the Euro III standards, according to Wang Binggang, senior researcher at the China Automotive Technology & Research Centre based in Tianjin.

Wang revealed the plans at the 2004 China Clean Automotive Technology Development and Application Forum held in June 2004 in Shanghai. Gasoline will remain a major form of fuel in China for a long time to come and improving fuel quality to help vehicles satisfy Euro III emission standard is of utmost important task facing China.

China will gradually market liquefied petroleum gas (LPG) as alternative fuel and encourage auto-makers to develop LPG vehicles that satisfy Euro II and III emission standards. China will implement the Euro II emission standard on a national scale in 2004/2005. Beijing and Shanghai have already put this standard to effect. China's environmental watchdog has finished the drafting of an auto emission standard equivalent to Euro III and is expected to adopt it nation-wide in 2008.

·	Ford has co-operated with China's Ministry of Science and Technology to develop advanced flexible-fuel vehicle technology, which allows various blends of gasoline and methanol to be used with no change in engine performance.
·	Germany's Volkswagen has begun to produce cars equipped with modern diesel engines in China. In 2002, the company began producing its Jetta with a suction direct injection (SDI) engine at its joint venture with First Automotive Works Corp (FAW).
·	Japan's Toyota Motor Corp will start to produce its hybrid-powered Prius car in China next year in collaboration with FAW.
·	A Beijing-based official of GM said that the world's No.1 auto-maker expects to put its hydrogen-powered vehicles into initial production in China in 2010.
·	China's Dongfeng Automobile Company has developed electric buses and cars.

Sources of information:
· CBU-Auto
· China Auto Statistics Monthly by China Auto 2000
· China Daily
· People's Daily Online
· www.just-auto.com
· www.tdctrade.com