Friday, May 4, 2012

car sector in china

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The car sector within China automobile industry is taken as an infant


sector and, as such, it has always been subject to protection against


imports by means of the highest import tariff rate. On several


occasions in recent years, China has made readjustments to tariff


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rates. The import duty has been reduced to 80% for complete cars with


a displacement of three liters or less and 100% for those with a


displacement of three liters or more. This is higher than for all


other imported industrial goods.


The tariff rates for car parts and accessories, however, are lower


than for complete cars 40-50% for engines, gear boxes, driving axles,


vibration reducers, clutches and breaks, % for tires, and 1-5% for


electronic devices used in cars. To encourage domestication of car


building, the state is practicing a string of preferential tariffs.


Entitled to these preferential tariffs are imported parts and


accessories by enterprises producing complete cars provided they meet


the domestication standards prescribed by the state.


Going hand-in-hand with protection by high tariff rates are non-tariff


restrictions on import of automobile products under the import quota


and licensing system. It is true that import quotas are playing a less


important role in restricting automobile import as domestically built


vehicles have become increasingly cheap and their prices on the


domestic market are now closer to international prices. Despite that,


a comparison between the marketing prices of imported goods and their


normal tax-included prices (prices that include the custom duty, VAT


and consumption tax on them) brings to light that the non-barrier duty


equivalents practiced under the quota systems will still be as high as


10%-0%. Restrictions by the quota system will be even more


significant on the import of medium- and high-class cars with a


displacement of liters or more.


Since the beginning of the 10s, the annual national automobile sales


has grown at an average rate of 14.5%, and corresponding rate of


increase is as high as 1% for sales of cars. In other countries and


regions, the number of automobiles in the population possession will


increase rapidly when the annual GDP of a country or region reaches


US$4,000 per capita (at purchasing power parity). By then, the


elasticity index of per capita possession of cars relative to economic


growth up will have risen from 1.7-1.8 to .6-.7. According to recent


studies (e.g. Maddison, 18; Ren, 17), China GDP, calculated at


purchasing power parity, is close to US$,000, suggesting that


beginning 004, the domestic demand for car will grow even more


rapidly than now. Our own computation indicates that by 010, cars


owned by the Chinese population will average 47 per 1,000 people, and


corresponding figure for automobiles will be 17 per 1,000 people. Both


figures will match those for Japan in the mid-160s and those for the


Republic of Korea and Taiwan in the 180s. Basing ourselves on this


computation, we are expecting a potential national demand for 5.8


million automobiles and million cars in 005, and 10 million


automobiles and no less than 4 million cars by 010.


In the first place, the domestic automobile market is isolated from


the international automobile market because of the high tariff rates


imposed by the state. And as a result, Chinese automobile enterprises


are almost free from the pressure of international competition. At


present, the domestic selling prices for imported cars that include


import custom duties, import-linked VAT and consumption tax are


.-.5 times their CIF (cost, insurance and freight). Besides,


automobile imports are subject to restrictions of import quotas,


import licensing and other non-tariff measures. As a result of so


great a protection against imports, cars imported through normal


channels are bound to suffer from limited competition capability in


light of the cost of production and selling prices for domestically


built cars. As a matter of fact, automobile imports have continuously


declined in recent years, to less than 40,000 vehicles in 18, and


imports of cars, to less than 0,000. The share of the Chinese market


was imported automobiles was 18.5% in 1 and, by 18, it had


dropped to .5%; and the share for imported cars, from 61.1% to .5%.


Moreover, deductions in tariff rates in recent years have failed to


push up imports. It is therefore clear that as long as China continues


to practice the current tariff rates and import quota system, cars


imported through normal channels will be no challenge to domestically


built cars. What also merits attention are the various protection


measures taken by local governments, which lead to partition of the


domestic market and inadequate competition between domestic producers.


The automobile industry does have certain barriers against entry


because of its scale economic feature. The state, on its part, has,


through policy measures, imposed restrictions on the number of


automobile projects to be started. All the factors cited above


invariably result in a market structure with a certain degree of


monopoly as a most striking feature. And finally, competition on the


domestic automobile market is also subject to state restrictions,


e.g., by valorizing automobiles to restrict price competition.


The 1 car manufacturers operating in 18 produced 510,000 vehicles


altogether averaging less than 40,000 by each. For the largest, the


Shanghai Volkswagen Automotive Company Ltd., the output was a mere


0,000. About 0 car manufacturers are operating in China, but


factories producing cars may number about 0, including some that are


not licensed for car manufacture.


Again the car sector. The sector has a total production capacity of


more than 1 million vehicles but the effective market demand is


computed at no more than 500,000. The volume of car sales, which is


limited, has become a serious handicap to car production, as it leads


to idle production capacity and excessively high fixed cost of


production apportioned to cars produced. Further deductions of tariff


rates on imported cars may cause prices to drop on the domestic


market. This, in turn, helps boost the market demand for cars. The end


result will be lower cost for domestic manufacture of car and greater


competitiveness of the domestic automobile industry.


The domestic automobile industry falls far below the best


international standards for batch quantity of production, prices of


products and technological level, hence its inability to take part in


international competition in an all-round way. The current protection,


however, can in no way help the industry achieve scale production,


enhance its efficiency, improve its technological level and reduce the


cost of its production and operation. Weak market demand and imperfect


competition are the main reason for problems the domestic automobile


industry faces low level of production concentration, limited size of


individual enterprises, low efficiency, inadequate competitive power,


etc. Because of this, a constantly expanding demand and increasing


competition are what the domestic automobile industry inevitably


requires in seeking development. China WTO entry will be conducive to


effort to expand the domestic automobile market and enhance the


domestic automobile industry competitive power. In view of this, the


government, while striving for entry of the global trade organization,


should make positive efforts to foster the market. That means


establishing a kind of highly efficient, pro-competition market


mechanisms, and using market means and competition to promote the


merger and re-organization of the existing car manufacturers. And in


the process, those technologically backward and poor in efficiency


will be eliminated and manufacturers in general will be forced to


improve their management and efficiency. In short, within the short


protection period allowed to China in the wake of its WTO entry, the


Government should see to it that the domestic automobile industry will


rapidly enhance its competitive power.





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