中国汽车研究报告.doc

China Aims to Reach the Level of Advanced Countries in 2010by Promoting Reorganization of CompaniesUnder the New Automobile Industry Development PolicyOutline In June 1, 2004, the Chinese government officially announced and enforced the Automobile Industry Development Policy (new auto policy), which replaces the Industrial Policy for the Automobile Industry (formulated in 1994) as a new signpost and policy for development of the automotive industry. The new auto policy does not change the current move toward the expansion of a partnership with foreign automakers. The new policy aims to make China join with major auto producing countries by the standards of developed countries in 2010 using a partnership with foreign capital as the driving force.In line with the announcement of the new auto policy and Auto China 2004 (the 8th Beijing Motor Show), which opened on June 9th, the announcement of Chinese business plans was successively made by automakers worldwide. The scale of Chinese business by major global automakers, including plans already revealed by each automaker, will amount to more than 7.3 million a year in several years.the New Auto Industry Development Policy Of ChinaChina, focusing on the balance of development, aims to take a place among major auto producing countries by 2010Chinas vehicle production surpassed 3.2 million (including 1.15 million passenger cars), the production target for 2005 under the Tenth Five-Year Plan (2001-2005) for the Automotive Industry in China, which was announced in June 2001. The production volume amounted to 4.44 million in 2003 (including 2.19 million passenger cars).Against the backdrop of rapid growth and under the Automobile Industry Development Policy (issued in June 2004), which serves as guidance for Chinas automobile policy, the following objective has been set: The fostering of Chinas automotive industry into a core industry of the national economy by 2010, the forming of industry into an exporting industry including, as the subject of the policy, cooperative development with related industry and transportation infrastructure and the fostering of a sound automobile consumer market while preventing severe maladjustment from occurring due to a rapid growth.Chinas Output of Automobiles(10,000 units)Note:The target figure for 2005 is 3.2 million under the Tenth Five-Year Plan (2001-2005) for the Automotive Industry in China (which was compiled in 2001). Output went beyond 3.2 million to a total of 3.25 million in 2002. Output amounted to 4.44 million in 2003. Output totaled 1.35 million in 1994, when Industrial Policy for the Automobile Industry was formulated as Chinas first industrial policy.Objectives by 2010 under Chinas Automobile Industry Development Policy * To make the automotive industry into a core industry of the Chinese economy.* To foster a sound consumer market by promoting cooperative development of related industry and transportation infrastructure, and environmental protection.* To join among major auto producing countries worldwide, and to almost satisfy domestic demand and to export products in large amounts overseas.* To improve capability for R&D and technological innovation to foster several global brand companies in the filed of vehicles/motorcycles/automotive parts.* To foster several large-scale internationally competitive automobile production groups by preventing a number of small-scale companies from flooding the market.* To develop suppliers that can compete in the global market.Fostering a large automobile corporate group with a market share of more than 15% and an independent management planAs a principle of policy operation, integration is maintained of a basic role of resource allocation based on market mechanisms and macroeconomic adjustment by the government. One of the policies that bring the principle into shape is mandatory formulation of a development plan by a large-scale automobile corporate group, which mutually complements a medium- and long-term development plan that National Development & Reform Commission designs. Large-scale automobile groups themselves formulate their own development plans based on the medium- and long-term plan and carry out the plan independently as it wins approval from National Development & Reform Commission.One of the requirements to become a large-scale corporate group is having a 15% share of the market in China; currently two groups, China FAW Group Corp. (FAW Group) and Shanghai Automotive Industry (Group) Corp. (SAIC Group) have a marketshare of 15%. The new auto policy supports automakers developing into large-scale automobile corporate groups in the form of resource restructuring or encourages an automaker to form an alliance by complementing each companys advantage and sharing resources.Participation by foreign capital into such reorganization is also encouraged. The new auto policy supports large auto corporate groups jointly in foreign auto groups consolidating/reorganizing automakers inside and outside of China, thus expanding their business range. In such a case, the restriction that limits the number of foreign shareholders to as many as two is not applied.As for a recent actual example, GM and SAIC (1) will jointly purchase the former Daewoo Motors production facility in Shandong Province and (2) plan to bring Jinbei GM Automobile under the umbrella of Shanghai GM. A wide variety of similar potentials have opened for other companies that have expanded into China.Note: As a measure to expand the range of independent management, a notification system was introduced into a portion of investment that was required to win approval. For instance, in the case of production of a new model which is required to receive authorization from multiple government agencies, companies, if they meet the requirements, are able to obtain approval through notification and the governments announcement in a shorter time than before.Investments that are stipulated as subject to the notification system are as follows: (1) Investment in expansion of production capacity and increases in a variety of similar products by self-financing (2) Investment in motorcycles and motorcycle engines (3) Investment in vehicles, and parts for agricultural vehicles and motorcycles. 2003 output by major automobile corporate groups in China: Top 10(unit)Major foreign partner companiesOutputRatioChina FAW Group Corp.Toyota, Daihatsu, VW, Audi, Mazda858,73719.3%Shanghai Automotive Industry (Group) Corp.VW, GM, Volvo, Ssangyong Motor796,96917.9%Dongfeng Motor Group CorpNissan, Nissan Diesel, Honda,PSA, Yulon Motor, Kia473,01210.6%Changan Automobile (Group) Liability Co., Ltd.Suzuki, Ford, Mazda, Isuzu406,8619.2%Beijing Automotive Industry Holding Co., Ltd.DaimlerChrysler, Hyundai Motor,Mitsubishi Motors, Isuzu347,9477.8%Harbin Hafei Motor Co., Ltd.Mitsubishi Motors200,0074.5%Jinbei Automobile Co., Ltd.Toyota124,4382.8%Guangzhou Automotive Industry Group Corp.Honda, Toyota, Isuzu122,5682.8%Changhe Aircraft Industries (Group) Co., Ltd.Suzuki118,7212.7%Nanjing Yuejin Motor Group Corp.Fiat, Iveco99,4692.2%Other894,95720.1%Total4,443,686100.0%Source: China Automotive Industry Newsletter of Production & Sales To streamline the structure of the industry by promoting selection and reorganization and by tightening conditions on the establishment of new automakersAfter 2000, when vehicle production in China surpassed 2 million, the number of companies that had entered into the field of vehicle production by taking over slumping automakers and other means increased rapidly; an accumulated total of those companies has amounted to 24 since 2000. Including those new entrants, more than one third of the 117 automakers were reported to be suffering from a deficit at the end of 2002.Under the new auto policy, a system that leads corporate realignment is introduced to expand the scale of companies and profit, to increase concentration of industry, and to prevent small automakers where production and management capability is lower from proliferating.Authorization of production to automakers had previously been referred to as permanent qualifications, but the new auto policy makes clear provisions for the shut down of automakers. In concrete terms, names of automakers that fail to sustain management are made public and those companies are prohibited from transferring qualification of production to non-automobile companies. In addition, companies whose names are made public are encouraged to shift into production of specialty vehicles and automotive parts, or to reorganize with other automakers.Proliferation of automakers that are lacking in the technological base is restricted by other aspects. The new auto policy sets mandatory requirements for technologies including automobile safety, environmental protection, fuel saving, and anti-theft at the level that is compliant with mandatory requirements in the international standard for vehicle technologies, thus establishing a certification system for automakers and products.Companies and products that fail to meet conditions for certification are eliminated from notification; therefore, business activities of those companies are virtually terminated. Moreover, under the new auto policy, requirements for approval for production by companies include requirements for capability for design and development, production facility, stability of production and quality control capability, capability for sales and after-sales service.Conditions for the establishment of a new automaker are tightened. Clearly indicated conditions include the attachment of R&D facilities with an investment of more than 500 million RMB, a total investment of more than 2 billion RMB, and self-financing of more than 800 million RMB. Companies that enter into production of passenger cars and heavy-duty trucks are also required to manufacture their engines.In addition, the lowest annual production volume is clearly indicated for companies that manufacture passenger cars and heavy-duty trucks from scratch.Conditions of approval for a new investment in the new auto policy Investment planConditions of approvalEstablishment of a new motorcycle maker and a new motorcycle engine makerTotal investment of more than 200 million RMB.Holds capability for product development and meets its conditions.Establishment of a new specialty vehicle makerCapitalization of more than 20 million RMB.Holds capability for product development and meets its conditions.New entry into production of another type of vehicle by automakerTotal investment of more than 1.5 billion RMB.The ratio of liability to assets of less than 50%. credit rating by banks of AAA.New entry into production of passenger car by automakerRecord of mass-production of vehicles.Accumulated pre-tax profit in recent three years of more than 1 billion RMB.Establishment of a new automakerTotal investment of more than 2 billion RMB. (self-financing of more than 800 million RMB).Attachment of R&D facility with an investment of more than 500 million RMB.Companies that enter into production of passenger cars and heavy-duty trucks are required to manufacture their engines as well.Establishment of a new automotive engine makerTotal investment of more than 1.5 billion RMB. (self-financing of more than 500 million RMB).Holds an R&D facility and continuously improve its levels. Meets a mandatory technical standard.Note:The lowest annual production volume is clearly indicated as part of conditions regarding production of passenger cars and heavy-duty trucks.Four-cylinder engine passenger cars: 30,000. 6-cylinder engine passenger cars: 50,000. Heavy-duty trucks: 10,000.The new auto policy succeeds in restrictions on vehicle production by foreign capital while restrictions are not applied to investment in the establishment of an export baseThe new auto policy succeeds in restrictions on foreign automakers concerning the number of Chinese joint venture partners to two companies in terms of passenger cars and commercial vehicles (two companies in terms of motorcycle as well), respectively, and also to a restriction of ownership stake of 50% or less. The new policy makes it clear that foreign automakers that are tied through management rights are regarded as the same company.Although standards for management rights are not made public, if we set a standard at one third of the total share, Mazda is regarded as being the same company as Ford and Nissan is regarded as the same as Renault. In the meantime, as it was reconfirmed that foreign automakers are able to establish a tie up with two Chinese companies, a joint venture with Guangzhou Automotive Industry by Toyota, which is currently forming an alliance with China FAW, is expected to win approval at an early date.The new auto policy was also designed to respond to the agreement in 2002, when China joined the WTO. The limit on the ownership stake of 50% is a restriction accepted when the country joined WTO. There are no provisions including balance of foreign currency on investment by foreign companies, balance of import and export, requirements for nationalization (in an investment in automobile production, a local-content ratio of auto-parts of 40% or over was required before), and requirements for export.Incidentally, though standards for approval for production of vehicles to be exported and of automotive engines in the export and machining area are not made clear, nor are restrictions on the number of joint venture partners and the ratio of ownership stake applied. There is a greater potential for business development using China as an export base; like the example of Hondas specialized export plant, Honda Automobile (China) Co., Ltd., which began production in Guangzhou City (65% owned by Honda, 10% by Dongfeng Motor Corp., and 25% by Guangzhou Automotive Industry).Note: Outline of the agreement in the field of automobiles in 2002, when China joined the WTO is as follows:(1)Lowering of tariffs: Import tariffs on passenger cars will gradually be lowered to 25% by July 1, 2006. The tariffs on buses will also be reduced to 25% by 2005. Those on trucks will be lowered to 15, 20, 25% between 2004 and 2005 (the ratio is different by GVW and the type of fuel).(2)Quantitative restriction on imports: It will be completely abolished in 2006, until such a time when the import quota will gradually be expanded.(3)Compliance with TRIM agreement (Agreement on Trade-Related Investment Measures): Balance of foreign currency, balance of import and export, demand for nationalization, and demand for export will be eliminated from requirements of approval for investment plans from abroad.(4)Liberalization in the field of distribution: Restrictions on entry by foreign capital into wholesale/retail sale of automobiles will completely be abolished in three years.(5)Entry into auto financing by non-bank financial institutions: Restrictions will be eliminated at the same time as the entry into the WTO.A new restriction on the import of auto-parts is introduced, requesting automakers to spin off their auto-parts divisionsThough the standard for a local-content ratio in terms of vehicle production was abolished, import controls were introduced to foster auto-parts industry and suppliers.In such a case where automakers manufacture finished vehicles by importing core components, the automakers need to report to customs house as well as to the Ministry of Commerce of the P. R. China and National Development & Reform Commission. It is stipulated that if the ratio of import of core parts goes beyond a certain standard the products is regarded as an import of finished vehicles and that import tariffs on finished vehicles will be applied to imports of automotive parts. In effect, this is a regulation which requires that more than several kinds of parts by assembled vehicle be manufactured in China. It can be said that it is a system that designates nationalization of parts which adopts a selection system.Note: Incidentally, the import of used cars and used parts, and scrapping/assembling used cars and used parts imported as scrapped products are prohibited as before. Cases in which tariffs on finished vehicles are imposed on imported parts Assembly of vehicles by importing the body (including cabin), assembly parts and engine assembly parts.Assembly of finished vehicles by importing either the body (including cabin), assembly parts and engine assembly parts, or three other assembly parts.Assembly of finished vehicles by, excluding body (including cabin) assembly parts and engine assembly parts, importing more than four other assembly parts.Note: 1.Assembly parts include body assembly including cabin, engine assembly, transmission assembly, drive axle assembly, non-drive axle assembly, main frame assembly, steering assembly and brake system.2.Import of components of assembly sets and component module parts of assembly sets and systems is also regarded as import of assembly parts.Moreover, to foster the auto-parts industry and companies that have a specialized field and hold capabilities for mass-production and supply of modules a specialized development program for parts will be made by classifying the respective auto-parts. Automakers are obliged to gradually foster their auto-parts manufacturing division in-house to independent specialized suppliers for external companies.Suppliers are urged to make efforts to expand into the global market by aggressively participating in the product development process of their customers to enhance their capabilities for system d