Lower tariffs are set to encourage a Chinese export boom in auto parts and cars - and also help to reduce the trade imbalance.
CHINA'S fast-growing automotive industry makes up only a tiny part of overall exports - but that is set to change.
The government is expected to boost auto exports as part of the nation's policy to narrow the trade imbalance.
According to the Ministry of Commerce, China recorded exports of US$969 billion in 2006, compared with imports of US$792 billion, netting a massive trade surplus of US$177 billion.
To restructure its exports, the nation has cut export tariff rebates on raw materials and energy-consuming products while offering higher rates for high-tech and processed agricultural products.
And that means good news for Chinese car makers.
Last year, China's total exports of automotive products grew 42.7 percent to US$28.1 billion, according to the China Association of Automotive Manufacturers.
Exports of automotive parts and components reached US$21.5 billion, far beyond the US$12 billion projection by Ministry of Commerce in 2005.
In the future, parts exports are expected to grow aggressively by 20 percent annually, as global auto makers, including General Motors Corp, Ford Motor Co, Volkswagen AG, Toyota Motor Corp, and DaimlerChrysler AG, ramp up their parts-sourcing operations in China.
"All of these original equipment manufacturers have set up sourcing operations in China, and all have expressed their desire to source billions of dollars of more parts in the coming years," said Timothy Dunne, analyst at Automotive Resources Asia Ltd (ARA), a division of J.D. Power and Associates, in a recent report.
The vast majority of these parts were for aftermarket applications, and 60 percent of the total spend was for chassis/drivetrain and electrical/electronic parts.
China's robust automotive exports stem from the development of the auto industry over the past 10 years and its competitive price on the global market.
In 2006, exports of passenger vehicles reached 110,000, with light commercial vehicles totaling 150,000, the ARA report said.
These helped China to rank fourth in Asia in vehicle exports, behind Japan, Korea and Thailand.
While most Chinese exports are locally made brands that are small, simple, and extremely cheap, some global auto makers like Honda, Nissan and Shanghai General Motors Corp Ltd have started shifting production into China, where labor is cheap, and exporting models.
While China's vehicle exports are relatively small, it is a start.
"The main benefit to Chinese auto makers is that exports allow them to grow their production volumes, while gaining experience in managing the logistics and distribution system necessary to support a fully-operational and sustainable export program," ARA's Dunne said.
A former analyst agrees. "Currently exports of car components are still not advanced enough," said Jia Xinguang, formerly of China National Automotive Industry Consulting and Development Corp.
"But vehicle exports will have added value and help to lift the total export value."
So far Chinese original equipment makers have chosen to target softer export markets such as the Middle East, Southeast Asia and Africa.
But they are planning an aggressive export drive towards Western markets.
Indeed, many have announced their intentions to do so, including Chery Automobile Co Ltd, Zhejiang Geely Holding Group Ltd, Jianghuai Automobile Co Ltd, Great Wall Motor Co Ltd, and Zhongxing Automobile Co Ltd.
But to their credit, most of the Chinese manufacturers are extremely cautious about entering European or American markets too early.
To put this in perspective, gross domestic product rose 10.7 percent in 2006, the highest annual growth in more than a decade.
It was also the fourth consecutive year of double-digit GDP growth in China, and if it continues at this pace over the next two years, it is likely to surpass Germany in 2008 to become the world's third-largest economy after the United States and Japan.
A major driver of China's surging economy is its soaring export industries when domestic consumption has yet to take root in the latest round of macroeconomic control.
As a result of its continuous trade surplus over the past decade, China has accumulated foreign exchange reserves of over US$1 trillion, the largest reserves in the world.
And the trade imbalance could become an even worse problem for China's future development and impose more pressure for the yuan to strengthen if no action was taken.
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