Challenges, opportunities for today’s Chinese auto export business

Shanghai (Gasgoo)- In 2012, Chinese automobile exports reached 1.056 million units, which have not been exceeded up until now. A main factor accounting for the bottleneck is that Chinese cars have not been good enough to compete head-on with those from Europe and America, Cui Dongshu, secretary general of the China Passenger Car Association (CPCA), said at the 13th China Auto Bluebook Forum (CABF).

Cui Dongshu, secretary general of the China Passenger Car Association; photo credit: China Auto Bluebook Forum

The volatile global situation also cramped a continual growth for Chinese auto exports. According to Mr. Cui, China's automobiles were mainly exported to the markets of Africa, West Asia, and South America, rather than the U.S. and Europe where Japanese and South Korean automakers are main players. However, Chinese automakers were forced to pull out of their overseas markets temporarily before their products were fully accepted by local consumers and a mature after-sale service system is built due to some unexpected local and international political and financial reasons. For example, Chinese automakers performed well in Russia in 2010, while then had to retreat there because of the tax policies issued by Russian government.

Automobile is born to be a globalized industry that requires the international division of labor and cooperation. New challenges in capital, technologies, management, and cultural integration keep emerging as many countries have requested automakers to have cars locally manufactured and auto parts locally sourced.

Zhang Peng, general manager of JAC International Co.,Ltd.; photo credit: China Auto Bluebook Forum

For China, the immature linkage of production, supply and sales, the supply constraint of core parts like chips, the rising production cost led by the growth in the prices of raw material and labor forces, the container shortage, and the surging logistics cost have all put a brake on auto export growth, said Zhang Peng, general manager of JAC International Co.,Ltd.

Chen Jingyue, executive vice president and secretary-general of CEATEC (China-Europe Association for Technical and Economic Cooperation), shared the challenges the CEATEC has found out when it was tracking the China-made vehicles exported to the European Union.

Firstly, there are few means of transportation for Chinese companies to export their NEVs.  Currently, China-made NEVs are mainly transported by ro-ro ships, leading to high transport costs and long shipment duration due to the insufficiency of available shipping routes. It is also rather difficult to carry NEVs with containers as exporters have to go through extremely complex administrative procedures.

China-Europe freight train for Chery's exports; photo credit: Chery Holding

Although the China-Europe freight trains are playing an important role in the goods trade between China and Europe, some lithium batteries would be malfunctioned during the railway transportation. “Our China-Europe freight train department is organizing relevant experts in order to solve this problem as soon as possible,” said Chen Jingyue.

On the side of capital, companies are also vexed by several issues. Due to the expanding export business and the high value of NEVs, enterprises are posting growth in accounts receivables. Besides, companies pour billions into the R&D of NEVs designed for different overseas markets and spend a long time on market trials, thus a large proportion of their capital cannot be flowed. In addition, the difficulty for China-made NEVs to get overseas financial services, such as consumer credit and financing guarantee, is another obstacle confronting Chinese exporters.

Furthermore, the vehicles to be exported have to get their charging ports retrofitted to meet the European or American standards which are mainly adopted by the China's current destination markets and potential target markets.

With the China-Europe trade cooperation being gradually deepened, laws and regulations have been frequently adjusted by authorities of European countries and the European Union, said Chen Jingyue. Therefore, Chinese companies need expend a great deal of money in employing lawyers and accounting firms to help them comprehend and comply with local laws.

Nonetheless, there are many opportunities juxtaposed with challenges for China's auto exports.

Compared to the old days, Chinese cars have already made major headway in quality and brand influence.

Wang Lingyu, general manager of China FAW Group Import & Export Co.,Ltd.; photo credit: China Auto Bluebook Forum

“The momentum of brands moving upscale is sure to bring an expansion in traditional trading market scale. For example, the cars we used to export to Middle Eastern countries were mainly priced between $7,000 and $10,000 per car. However, local consumers are gradually accepting cars priced above $20,000,” said Wang Lingyu, general manager of China FAW Group Import & Export Co.,Ltd.

Besides, Europe has become an important market for Chinese new energy vehicle (NEV) makers to make breakthroughs. “Policy and consumers’ purchasing power are two main factors taken into consideration when people decide whether to buy NEVs or traditional fuel-burning cars. The European Union and many European countries have offered substantial subsidies on purchasing electric vehicles (EVs), and their consumers have congenital advantages over Chinese in terms of buying power,” said Wang Lingyu.

Chen Jingyue expressed a similar viewpoint. She thought Europe would be a blue ocean (referring to a market for a product where there is no competition or very less competition) for NEV business.

Aside from the aforementioned governmental incentives, another main contributing factor to the huge potential is the stringent carbon emission standards issued by the European Union which compel automakers to work on the transition to EVs, said Chen Jingyue.

As a mature auto market, Europe has a great deal of consumers who place strong emphasis on quality of products and functional values such as usability and safety, while less care about what the brand it is.

Chen Jingyue, executive vice president and secretary-general of CEATEC; photo credit: China Auto Bluebook Forum

“By tracking some vehicles exported to Europe, we found out that China-made NEVs feature better intelligence functions and higher cost effectiveness than Europe-built models. Thus, those made-in-China NEVs for sale have very little rivals there, so that their demand is short of supply,” said Ms. Chen.

The export of used cars is also a potential business deserving further exploration. For instance, Japan had a raft of pre-owned cars sold in developing countries in such regions as Central Asia and Southern Africa, most of which are left-hand drive markets. As Japan-made right-hand vehicles have to be modified before hitting the roads, many countries are mulling over to replace Japanese cars with other countries’, offering a chance to Chinese second-hand vehicle exports, said Ms. Chen.

SAIC's cars ready for export; photo credit: SAIC Motor

To grasp the opportunities, Chinese auto industry should further strengthen its R&D and manufacturing capabilities for local brands, said Zhang Peng. Spurred by governmental policies and the new round of consumption upgrading, China's intelligent vehicle business has grown to a massive market scale with a complete industrial chain. Additionally, the crossover innovation and the positive edges in intelligence and electrification areas also make Chinese auto brands more competitive, he added.

He also suggested that Chinese automakers should endeavor to shore up its weak spots while enhancing advantages. To be better accepted by local markets, they should work on meeting the requirements and restrictions of local policies and regulations, integrating local resources, building Internet ecosystem available to local market climate, protecting users' privacy and receiving the oversight over data. “Issues must be solved with patience,” Zhang Peng said.