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Chinese auto market still full of potential

The 2016 International Forum (TEDA) on Chinese Automotive Industry Development, with a theme of “Reform the Supply Front and Reshape the New Drive,” was held in Tianjin on September 2-4. About 1,000 automotive executives, government and industry association officials, leaders of internet and high-tech companies and the media shared their opinions and perspectives on the state of the industry and its future development prospects. The following are highlights of the forum. – Editor

 

At the opening speech, Yu Kai, Party secretary of China Automotive Technology & Research Center (CATARC), which organized the forum, indicated that connected vehicles had become the new focus for the Chinese market and a symbol of high-tech development, and will accelerate the transition of the market. Dong Yang, executive vice president of China Association of Automobile Manufacturers (CAAM), said that while the country is experiencing a structural change, the auto market is facing a new era, an era that IT is bonding with the traditional auto industry making it turn toward service-oriented instead of production-oriented. Zhang Suixin, vice president of Volkswagen China, said that currently the Chinese auto market is facing the impact from IT and is slowly changing the concept of the consumers, that a car is no longer just a transportation device and demand for vehicles to be more intelligent are becoming critical.

However, the market would not evolve without the help from the authority: the government had issued many laws and regulations that are helping the market to move forward, but in order to make it more efficient, the government itself would also need structural changes. Wu Wei, deputy director, Department of Industry Coordination at the National Development and Reform Commission (NDRC), said that the auto industry as one of the pillar industries of China’s economy is facing great opportunities as well as great challenges, being an observer as well as a “guide” to the industry, the government should keep closer supervision and establish a more efficient mechanism of production capacity warning to actively prevent overflow of production capacity. According to research, 98 percent of the national production had come from the total of 30 auto manufacturers, their total annual production capacities have reached 31 million units, and another 6 million units is being added. Those numbers had already outreached prediction on consumption growth. Total capacity utilization rate is still low, with commercial vehicle production at only 52 percent of total capacity. As for EVs, the rapid expansion of the market had attracted huge amount of capital, in turn, causing products with low quality to flow into the market.

The industry needed to be put in check. The NDRC is making major changes in investment project managements. By delegating authorities, 90 percent of the investment projects that need to be qualified by the central government would be downsized. This in turn makes the projects more efficient, and also makes the market more competitive. As for EV market entry qualification, the laws and regulations should only be more critical, the government in the meantime would focus more on helping the advanced manufacturers achieve higher goals.

Wu said that the auto industry should be more focused on the continuous development in the future. In order to take a place in the global market, automakers should be putting more resource and investment on core technological R&D, quality control and building of brand awareness.

Stephan Stass, senior vice president of Bosch Chassis Systems Control Driver Assistance Systems division, said that electrification, autonomous driving and internet connectivity are the ways for the future global auto industry. He believes China has achieved significant progress on research of autonomous driving, and indicated that the crossover between IT companies and vehicle manufacturers are to bring more opportunities to the auto market, which is very encouraging. He had no doubt that by joining forces the Chinese market would soon thrive.

Christine Greulich, head of Intelligent Transport Systems and Automated Driving Department of German Federal Ministry of Transport and Digital Infrastructure, shared the status of automated driving research in Germany, saying that it had become a common sense that developing automated driving as well as EVs is the main goal for the global auto industry. Not only would it reduce traffic accidents, it would also help reduce pollution. She indicated that right now several companies had made their field researches and tests in several countries, and received positive outcomes, and she hopes soon Germany would reach out to China for intensive research projects. Mrs. Greulich personally expressed her interest in the Chinese auto industry. Although currently China is experiencing critical traffic issues, but to her, the Chinese auto market is rather attractive, also full of opportunities. She said the Chinese auto market had huge potentials that have been waiting to be developed, and with proper help, the market growth would be spectacular.

Later in the brief session of Whether the Opportunity for the Production of High-End Chinese Brand Products is Ripe, professionals and high-level managements from OEMs and suppliers had a serious discussion. Feng Qingfeng, vice president of Zhejiang Geely Holding Group, and Xiao Yong, vice president of GAC Motor, agreed that Chinese brands have made significant strides in recent years in branding and quality which translated directly to higher sales, but the lack of core technologies as well as service quality still hinders Chinese brands. Zhang Yang, senior vice president of NextEV, indicated that it is still early for Chinese brands to go high-end, “there are still a lot to do before we go to that point,” he said. “Chinese brand quality has made great progress in the past five years, but I think it is vise to build and solidify brand awareness instead of going high-end.”

Huang Yonghe, leading expert of CATARC, asked a very insightful question: what is the definition of high-end for Chinese brands? Is it making a luxury brand or is it a development path? “There is always a path from low-end to high-end, no matter what brand,” he pointed out, and for Chinese brands, he indicated that they still have about 5 to 10 years of gap to fill compared to foreign brands. The major disadvantage of Chinese brands, according to He, is at core technology research. In order to claim more market shares, car companies would put as many new vehicles on the market as possible, and by doing so, it shortens the development process but comes at the expense of seriously lacking technology R&D. It resulted in low quality products overflowing the low-end market. He believes therefore it is immature for Chinese brands to go high-end at this point.

Wang Qiguo, president of China Brand Research Center at Peking University, agreed with Huang. He also asked an important question: what does high-end mean? Is it about quality or price? He said the main reason for Chinese consumers choosing foreign brands over Chinese ones was because the latter lacks technology, quality and brand awareness. “It is like running a marathon by using the speed of 100 meter dash,” he explained. Chinese brands gain little due to their small amount of sales, in turn lacking the money to invest in product research, which not only stall the companies from going forward, also wasting precious time on continuous technology and product R&D. Also by making an example of “breeding many children to fight a gang war,” he explained the awkward situation for the Chinese brands: many car companies would produce different brands, different types of vehicles to gain sales, which in turn, drag down market share as well as customer loyalty.

Jia Ke, chief editor of Auto Business Review, believes that although Chinese brands have made significant achievements, they still lack core technologies and put too much on marketing and sales yet little on R&D. Many Chinese carmakers train their eyes on short-term benefits rather than long-term development. If Chinese brands were to go high-end, much effort on R&D and quality improvement is needed.

All in all, the forum had come to a conclusion that Chinese auto market is full of potential, yet the industry still has a lot of catchup to do in order to earn its true position in the global market.

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