MARKET WATCH

OPINION

Auto Industry: Long Way to Go

When China joined the World Trade Organization in 2001, worries proliferated that the country’s auto industry would receive a heavy blow. The concerns turned out to be unnecessary as the sector has been growing remarkably.

China’s auto market is getting into full swing, but problems still need to be properly addressed. The industry has room to improve in terms of branding, talent and technologies.

First, Chinese auto manufactures have a lot to do to improve their brand recognition.In the past 10 years, major multinationals have established a solid market foothold in China, with distinctive brand characteristics.In striking contrast, their Chinese competitors have focused on sales and put little effort into branding. Such a product-driven business model can increase sales volume in the short term, but that means China’s auto industry remains at a backward stage of development. How to shift their focus from product development to brand development will be a daunting challenge for Chinese fi rms.

Second, the industry faces an acute talent shortage, especially high-end talent in automobile design. In China, foreign designers have largely dominated the field of automobile design, including most local and overseas brands. The number of local designers is increasing, but they still need time to catch up with their foreign counterparts in product design and engineering design.

Third, the technological disadvantage has been a signi fi cant barrier undermining the industry. China has become the world’s largest auto market, with sales totaling around 18.5 million units last year. However, most core technologies for vehicles and components are still in the hands of foreign companies, leaving domestic fi rms in a weak position to compete.

In recent years, joint venture auto companies have developed a number of so-called self-owned models. But many of them were simply based on outdated foreign models. Joint ventures restructured the old models into new ones to make windfall profits. Policymakers have obviously realized the problem as they tightened approval thresholds for the establishment of new joint venture auto fi rms.

Meanwhile, in the area of new energy vehicles, Chinese firms also face the risk of falling behind. In the past few years, domestic auto producers have made a push into electric cars, which raised hopes for the leapfrog development of the entire industry. But soon,multinationals regained the lead by releasing new electric vehicle models and strengthening research into new materials. China’s onceroaring tide of new energy vehicles seems to be cooling down.

The complicated situation made policymakers hesitant and their inconsistent policies have cast a shadow over the sector. For example, the government has withdrawn a string of policy incentives, including subsidies to rural residents buying vehicles. This poured cold water on buyers’ interest and led to a prolonged market downturn. But recently,speculation abounds that the government may restart the subsidy program.

An increasing number of global auto part giants are building plants in China, allowing Chinese auto manufacturers to take advantage of their advanced components and better develop self-owned models.

But domestic companies have a lot of barriers to overcome, including insuf fi cient brand awareness, talent shortfall, technological weakness and less reliable product quality. In 2011, many local fi rms suffered falling sales and shrinking pro fi ts while global giants like General Motors and Volkswagen maintained rapid growth and dominant market shares.

THE MARKETS

Festive Shopping

Retail spending shot up as Chinese consumers opened up their wallets during the Spring Festival holiday this year (January 22-28).

Traditional festival goods, including food, fi reworks, jewelry, clothing and household appliances, all witnessed soaring sales.Monitored large retail and cuisine enterprises across the country reported a sales volume of around 470 billion yuan ($74.2 billion) during the seven-day holiday, up 16.2 percent year on year, according to data from the Ministry of Commerce.

Stable employment and continued wage growth are major factors behind the significant consumer boom, and this should be a needed boon for the economy as the country seeks to rely more on domestic demand.

“Despite high inflation last year, China’s consumer market is bursting with vitality,” said Lu Zhengwei, chief economist with the Industrial Bank Ltd. “It shows that China’s efforts to stimulate consumption is yielding results.”

Eyeing China

Huntsman Advanced Materials (Huntsman AdMat), a leading global manufacturer of epoxy adhesives, aerospace composites and electrical insulating materials, said its business in China will open a new chapter in 2012.

China’s industrial upgrade creates a huge demand for advanced materials, and this means huge business potential for Huntsman AdMat, said Steen Weien Hansen, the company’s Asia Paci fi c region vice president.

Many key industries that China encourages during the 12th Five-Year Plan (2011-15)are in the fi elds where Huntsman AdMat has strength, said Hansen.

The company will strengthen products for wind and solar energy, power generation and clean-energy vehicles. It also plans to combine its strong heritage of material innovation with its local business in China.

The company is building a new research and development center in Shanghai, which will be a world-class facility with 355 staff and put into use in the fi rst half of 2013, said Hansen.

This is an edited excerpt from an article inEconomy &Nation Weekly, a financial magazine published by Xinhua News Agency