The emergence of a middle class in China began in the 1990s, and the luxury car market soared in this decade. As in many other countries, the car in China was considered a symbol of one’s social status. A class of noveau riche had emerged – a small percentage of the population, but still numbering about 60 million. These were eager to show off their newly acquired social status. They had a preference for luxury foreign cars, particularly Italian or German brands, such as Ferrari, Lamborghini, Porsche, BMW, Mercedes or Audi.Many carmakers expected to go on and tap into China’s middle-class market, estimated to be around 300 million people. But only a few middle-class car buyers have emerged and then only in a few big cities. These buyers are more price-sensitive, in part due to tighter conditions imposed by the Chinese government to rein in high rates of economic growth. Measures were introduced to toughen the criteria for approving car loans from banks. Moreover, the government has maintained high taxes on luxury brands, despite its WTO commitment to reduce taxes. In response, carmakers introduced price cuts to boost demand. Price seemed to be an important selling point for middleclass Chinese buyers. However, technology was beginning to play an increasingly significant role in product differentiation. In the 1990s, VW and the other early entrants sent outdated factory equipment to China to produce older models that were no longer saleable in the West.
China is one of most attractive investment destinations for the world investors, and it is one of the world’s largest automobile markets, VW is one of the earliest foreign investors and the biggest foreign automobile manufacturer in China, it controls now over 30% of the Chinese automobile market.
Please join StudyMode to read the full document