Automotive Industry of China

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Automotive Industry of China

Country Background

China is located in East Asia facing the western Pacific Ocean. It currently has the largest population in the world which was estimated to be 1.3 billion in 2012 (CIA World Factbook, 2013) and the nations’ area ranks 4th in the world. However, because majority of the lands are hills and mountains while only 14.86% of the lands mostly in the east coast are arable, major cities and industries are located along the east coastline of China (CIA World Factbook, 2013). The three northeast provinces: Heilong Jiang, Ji Lin, and Liao Ning are where the traditional heavy industries are located. Meanwhile the Yangtze River Triangle centered by Shanghai and the Pear River Triangle centered by Guangzhou of southern China have rapidly developed after the economic reform starting from 1978 in manufacturing industries, technological development and service industries. Along with the extensive economic development achieving $12.38 GDP at Purchasing Power Parity ranking 3rd in the world, much of the population’s living standards have improved dramatically and the room for personal choice has expanded (CIA World Factbook, 2013).

Sector Background

Automotive industry started late in China due to constant wars, and the unstable political and economic situations in the early 20th century. In the 1920~1930s, the former Chinese government trialed automotive production in Shenyang of Liao Ning Province which was one of the earliest north-eastern heavy industry provinces by a combination of imported and copied parts from Chevy of General Motors in the US at the time (Chinese Automotive History and Development, 2012). However with the outbreak of Japanese invasion to the northeastern provinces and prolonged wars in China, automotive industry was halted until the nation was stabilized and the government set up China’s first automotive manufacturing factory—the First Automobile Works (FAW) in 1953 in Chang Chun. Before the nation could manufacture its own automobiles, cars or trucks running on Chinese roads were rare and they were imported from various countries of various brands. With the development of automotive industry, Chinese cars have achieved huge advances. According to the China Automotive Industry Yearbook (2012), output value of automotive industry has increased from ¥70.45 billion in 1991 to ¥4, 340 billion in 2012 (projected value) comprising of 6.1% of China’s total industry output and 2.5% of the total GDP. Automobile industry has become one of China’s major industries which facilitate economic growth as it is a major job providing industry which currently employing 40 million direct and indirect people of the workforce; and Chinese automobile industry is currently producing the largest amount of parts and finished automobile products in the world at around 18 million cars in 2012 (China Automotive Industry Yearbook). Currently there are four major manufacturers ranked by production capacity. It is measured from the capacity of 2 million cars per year as the reference point and the three which are with the best production capacity and sales are First Automobile Works (FAW), Shanghai Automotive Industry Corporation (SAIC) and Dongfeng Motor Corporation (DFMC). Other than the four largest, relatively smaller automotive companies are trying to catch up with the international trend of automobile technological development. Changan Automobile group the, 4th largest, provided majority of economic minivans for the market is investing in R&D to develop its own technologies in engines powered by new energies such as fuel cells and hybrids; Beijing Automotive Group, the 5th largest of Chinese automotive industry successfully acquired SAAB from bankruptcy to gain the advanced engine, turbo, transmission and technologies from the Sweden; and BYD concentrates in developing reasonably priced hybrid and electric cars for the average Chinese consumers (Chinese Automotive Information,...
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