Gasgoo.com (Shanghai June 4) - Xu Changming, director of information resource development at the State Information Center, predicts the Chinese passenger automobile market to continue to maintain growth of ten percent over the next decade, Autoweekly reported today. Mr. Xu made the statement at a conference held last week discussing the development of own brand manufacturers.
Mr. Xu believes that the predicted ten percent growth rate will ultimately be more beneficial for own brand manufacturers than joint venture enterprises. At the moment, JV companies are in no danger of failing; by comparison, many own brands are still competing for survival. If these own brands are able to outlast this ten year period, they will be in a much stronger market position.
When it comes to forecasting the pace of future development in the Chinese automobile market, there is a great deal of controversy, with many believing that Mr. Xu's predictions are too optimistic. For his part, Mr. Xu explains that his forecasts are based on research done on the development of automobile markets in developed countries.
According to his research, automobile markets undergo two phases of growth. The first is a phase of rapid growth of approximately 30 percent that lasts around five years during which the total number of automobiles in the country increases from five vehicles for every 1,000 people to 20 vehicles. Two examples of this growth are Japan from 1960 to 1964, when the market experienced 35.8 percent, and South Korea from 1981 to 1985, when the market grew 25 percent. In China, this growth phase lasted from 2001 to 2008, when annual growth rates averaged 30.4 percent.
The second period, meanwhile, is a period of stable growth. Growth rates during this period, which lasts roughly a decade, are ten percent lower than during the first phase. In Japan this phase lasted from 1965 to 1973, where growth rates were 22 percent, while in South Korea it lasted from 1986 to 1997, with growth rates around 20 percent. Mr. Xu expects China to maintain this phase for 15 to 16 years, with annual growth rates expected to be between 13 and 15 percent.
A growth rate of ten percent in the automobile market is equivalent to 1.5 times the growth rate of the GDP. That is to say, if China is able to maintain annual growth of GDP of seven percent, it will be able to achieve the predicted automobile growth rates. According to studies done by Peking University, the State Council's Development Research Center and the Chinese Academy of Social Sciences, China's GDP for the next decade should be between six and eight percent.
Mr. Xu also believes that China will be able to maintain economic growth levels of seven percent. He believes that the ability to sustain this growth will come from increasing industrialization and urbanization.
According to Mr. Xu, China is currently in the middle phase of industrialization, which, according to the history of developed nations' economies and taking into consideration the unique characteristics of China's economy, will last until at least 2020. During this period of time a great deal of development will come from the heavy industrial sector, which includes the steel, cement, chemical, automotive, shipping, machinery and coal industries. At the same time, construction of highways, railroads, airports, ports and urban infrastructure will also be completed during this phase.
Meanwhile, China's urbanization level reached 53.7 percent last year. While growth in wages prior to 2008 did not keep up with rises in GDP, that all changed after 2009 when worker salaries shot up. "This is beneficial for economic development; people with higher salaries tend to not consume more even if their salaries rise, [so] low-salary earners whose salaries rise play an important role in driving consumption for the whole of society," Mr. Xu explained, adding that the lower on the scale a person's salary was, the more inclined he or she would be to increase consumption following a salary raise.
When asked what other factors may restrict growth of the Chinese automobile market, Mr. Xu answered that in other countries, population density is the key limiting factor, while other factors, such as traffic congestion and limited resource allocation, are subsidiary factors. Mr. Xu added that China's population density is on par with that of Europe. Even if China only reached a level of 300 vehicles for every 1,000 people, half of Europe's 600 vehicles for every 1,000 people, it would possess a total of 450 million automobiles for a hypothesized population of 1.5 billion people. At the moment, it only has 120 million automobiles on its roads. "Therefore, development of the automobile market in the future is absolutely guaranteed," Mr. Xu remarked.
Rising tastes in consumption is another market trend that Mr. Xu pointed out. This has been especially evident over the past few years, where consumer trends have exceeded expectations. For example, since 2006, growth in the luxury automobile segment has outpaced that of the passenger automobile market as a whole; the market share held by luxury manufacturers has also been increasing, reaching a high of around 9.2 percent in 2012. Similar growth trends can be observed in the SUV segment, whose share of the total passenger automobile segment totaled 22 percent in 2013. Analysis of statistics from 2010 to 2012 show that the more luxurious an automobile model is the higher its sales growth rates tend to be; by comparison, sales growth rates of many models with price tags under 50,000 yuan ($8,102) were negative in 2013.
Mr. Xu believes this shift in consumer tendencies will continue due to three factors: rising incomes, changing attitudes about automobiles and the general positive attitude Chinese consumers have for luxury goods.
