Presentation Material_Fu Baozong

Comparison of Automobile Industry Policy Between China and Korea

By Fu Baozong PH.D

Academy of Macroeconomic Research, National

Development & Reform Commission , P.R.China

E-mail:[email protected] Tel:(8610)63908736

October 11, 2012

mailto:[email protected]


2012/10/12 1

BACKGROUND

Automobile industry plays an important role in the development of China and South Korea's economy.

Both China and South Korea choose a Government-led development way of catching up with the car industry.

Pushed by policy and market mechanism, auto industries of the two countries have increased rapidly for several years and now become important power of automobile production in the world.


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BACKGROUND

But due to the different history and social system, there are many differences in auto industry policies between South Korean and China, especially in policies about organization,technology,exportment and so on.

Differences in automobile industry policy caused a deep gap of competitiveness of automobile industry between two countries directly and indirectly.


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CONTENTS

Review of the development of automobile

industry in China and Korea

Similarity of Chinese and Korean automobile

industry policy

Difference of Chinese and Korean automobile

industry policy

Difference of policy effects in China and Korea


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Review of the development of automobile industry in China and Korea

Year China Korea

1944 - The first automobile factory was established, formerly named Kyungsung Precision Industry，which bccame Kia Motors company later.

1953 The first automobile factory ground in Changchun City;

-

1955 - The first Korea automobile "Sibal" was born,which was a jeep.

1956 The first truck named Jiefang was born in the first automobile factory.

-

China and Korea automobile industry development comparison


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China and Korea automobile industry development comparison

Year China Korea

1958 the first passenger car (Dongfeng brand) was successfully produced;

-

1962 The first K-360 truck was manufactured by KIA companies;

1967 The second car plant was officially founded;

Korea Hyundai Motor Company was established;

1974 - The first passenger car (BRISA B-1000) was born in KIA companies;


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The first truck of China named Liberation C10


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The first car of China named

DONGFENG


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China and Korea automobile production in history

Year Auto production

China Korea

1980 223 thousand vehicles; 123 thousand vehicles;

1988 645 thousand vehicles; Breakthrough of 1000 thousand units, up 1084 thousand

1992 Break through 100 million, up to 1067 thousand

1730 thousand vehicles;

1993 1299 thousand vehicles; Break through 2000 thousand units


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Auto production in China and Korea(1995-2011)

0

500

1000

1500

2000

10thousand units China Korea

China 145 148 158 163 183 207 234 325 444 509 570 728 889 931 1380 1827 1842

Korea 253 281 282 195 284 311 295 315 318 347 370 384 409 383 351 427 466

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


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Classification Employment Production Added Value

China Auto Industry ('10) (Thousand persons, 100million yuan)

2134.3 7561.5 6759.7

Share of Manufacturing Industry 2.2% 4.3% 4.2%

Korea Auto Industry ('09) (Thousand persons, trillion won)

250 113 35

Share of Manufacturing Industry 10.2% 10.1% 9.4%

Auto industry's relative position in the national economy


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Chinese automobile industry development stage

1, 1951 -1980 : autonomous development Government directly leading automotive enterprises, production and sales. Rely on independent research and development of automotive technology. The main products are trucks.


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Chinese automobile industry development stage

2, 1980 - 2000: joint development Enterprise autonomy was increasing Sino-foreign joint venture enterprises gradually dominant domestic market 3, 2000 -- today: mixed development As cars to enter families, the rapid growth of Chinese auto market. Own brand enterprises started to increase again


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In Korea,the automobile industry has experienced four stages of development. 1,In 1960’s: joint venture stage

The government to support the establishment of automobile enterprise. Using foreign technology production automobile assembly. 2, In 1970’s: localization stage

In December 1969, Korea developed a " basic plan " on the development of the car industry, putting forwards series of domestic targets.


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3, From the end of 1970’s to the mid-1980’s:

export expansion stage By 1986, Korea automobile export car amounts to 292000 units, becoming the world's ninth largest automobile exporter. 4, From mid-1980’s to the beginning of the 90's:

internationalization stage To cancel supporting policy stage by stage. To expand the degree of opening of domestic automobile market.


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CONTENTS




industry policy


industry policy



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Similarity of Chinese and Korean automobile industry policy

1.Government support In China. To take the automobile industry as a pillar industry to support. In 1994 and 2004 respectively has a special " automobile industry policy " To establish the strict admittance system of automobile enterprises To establish strict automobile product catalog.


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In Korea. Published a series of auto development plan. For example, in 1969 promulgated the " Basic Plan for Automobile Industry Promotion "; Develop industry access standards. For example, in 1967 set " Automobile Plant Permission Standards "; in 1975 and for the medium and small automobile manufacturers

issued a " Systematization Promotion Act " .


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2.To protect domestic market In the beginning of the development of automobile industry, China and South Korea for the domestic automobile market were adopted more strict protective measures, mainly through tariffs and non-tariff barriers to trade mode. China. 1951 - 1984, car tariffs on the import tax rate is 60%; 1985 - 1993, automobile import tax rate is 100%～ 120%; 1994 - 2001, car import tariff is reduced ceaselessly.


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Exhaust

volume

（L）

consumption

tax

tariff comprehensive tax

2004 2003 2002 2004 2003 2002

<2.2 5% 34.20% 38.20% 43.80% 65.28% 70.20% 77.11%

2.2-3.0 8% 34.20% 38.20% 43.80% 70.67% 75.76% 82.86%

>3.0 8% 37.60% 43.00% 50.70% 75.00% 81.85% 91.65%

China’s tariffs on imported car

(2002-2004) .


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In addition to tariffs, import management of car imports, also has a large number of non tariff measures, including import quotas, foreign exchange control, the right to operate foreign trade approval, import commodity classification management, import approval.


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In Korea Tariff barrier: In 1962 ," automobile industry protection law ", in the next 20 years, South Korea banned from import auto. Until 1986, car market began to conditionally be open. 1986 - 1995, import tariffs dropped from 60% to 8%. Non-tariff barriers: Such as the limitation of establishment of import car sales network; ban on TV and newspaper advertising; on the purchase of foreign advanced automotive customers special tax inspection; carry out " buy Korean goods " movement; loan limit; restrict importers to import large quantities of foreign cars.


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Adjustment of enterprise structure of automobile In China The government has taken measures to support the large automobile enterprise group construction, raise the level of industry concentration. Promulgated 1994 " policy of auto industry industry ", put forward to support key enterprises of construction specific goals; at the same time, supported key enterprises by policy loans, tax breaks and prioritize stocks or bonds and other preferential policies. In 2004 promulgated the " automobile industry develops policy " put forward again to encourage enterprises to strategic restructuring, reorganization of assets of large automobile enterprise groups.


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In Korea In 1972, closed throughout the country large and small motor vehicle assembly plant, especially surporting several major car companies. In 1980 the Korean government launched the " union of the automobile industry " resolution. In 1981 promulgated " auto industry rationalization measures "; After 1990’s, Korea government promote " big

group strategy " in the automotive industry


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Promote the product localization In China mandatory joint-stock enterprises localization ratio shall not be less than 40%, this provision was removed in 2002 ; In the car, according to the domestic level adopts different auto parts import tariff. In the light of the bus, take the corresponding preferential tax policies.


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In Korea In 1962, " auto industry protection law " restricting import of vehicles and parts; In 1966, the implementation of preferential allocation of foreign exchange and domestic level hook; In 1969, promulgated the " parts completely homebred plan "; In 1970, requiring all cars departments must complete the localization target in late 1974. Korean car localized rate rose from 21% in 1966 to 92% in 1981.


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CONTENTS




industry policy


industry policy



2012/10/12 27

Difference of Chinese and Korean automobile industry policy

1.Foreign investment policy In China Since reforming and opening, more and more transnational auto companies with key Chinese state-owned automobile enterprises established joint ventures, state-owned and joint-venture automobile enterprises became China's auto market main body; The original domestic enterprises brand is desalination, the late founded independent brand and private enterprises has not received enough support and at a disadvantage.


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Sales value of automobile enterprise(2010)

Foreign investment

33%

Others

29% State-owned38%


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In Korea At the beginning of the development of automobile industry, to prohibit the foreign business direct investment in the automotive field, therefore, to gradually get rid of foreign investment control to the national auto enterprises; Only when the automobile industry suffering, South Korea only moderately introducing foreign car companies to help domestic enterprises to extricate from difficult position; The South Korean national car companies have been fully privatized , with higher operating efficiency.


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2.Independent research and development policy In China After the reform and opening up, adhere to the introduction of technology and integration of independent development, but to pay inadequate attention to independent research and development of the automobile. Until 2004, it was proposed in the auto industry policy, " incentive automobile production enterprises improve research ability and the ability of technology innovation, and actively develop products with independent intellectual property rights, implement brand management strategy ".


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In Korea The government always adhere to independent development, very early start requirements of automobile enterprises' independent development of automobile. In 1973, the government required all manufacturers should be independent of the design auto model. In 1974, put forward the long-term revitalization plan, planing to produce complete homebred car After efforts, several major car companies are basically has the independent development ability.


2012/10/12 32


3.Passenger car policy In China In 1980, passenger car output is only 5400, accounted for 2.4% of the total auto output only. In 1994, the government proposed to encourage individuals to purchase the car for the first time. In 2000, the government put forward : to encourage a car to enter a family, vigorously develop public transport undertakings. In 2011, car production accounted for 78.6% of the total achieves output.


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In Korea The government at first attached great importance to the car industry, more earlier started to develope domestic car market In 1987, put forward tentative idea of " national car ", namely to give the economy car relief special consumption tax and other preferential. Since 1989, in order to encourage passenger car popularization, government decided to lower the consumption tax, cancel " national car" special consumption tax.


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Production Share of Passenger Cars

0%

20%

40%

60%

80%

100%

year

China Korea

China 23% 26% 31% 31% 31% 29% 30% 34% 47% 45% 49% 53% 54% 54% 54% 52% 79%

Korea 74% 73% 74% 73% 67% 60% 84% 84% 87% 90% 91% 91% 91% 90% 90% 91% 91%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011


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4.Export policy In China Government started to pay attention to auto export only in recent years. Exports of Joint venture automobile company was restricted, at the same time, the independent brand of export competition ability was weaker. Until 2004, in the " automobile industry policy ", the government put forward to expand on the automobile export. From 2007, the government began to take measures to encourage car exports.


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In Korea In the 1970’s, began to carry out encourage

export strategy. In 1974, the government proposed export target in " long car industry revitalization plan "; In 1977, the government designated the automobile industry as the strategic industry of export, and developed a " revitalize the export policy ".


2012/10/12 37

CONTENTS




industry policy


industry policy



2012/10/12 38


1.Concentration of automobile industry In China, there are 115 automobile companies, of which the top 5 automobile companies accounted for only 71.5% of total output, the former 10 accounted for 87% of total output In Korea, there are only 7 automobile companies according to KAMA, of which the top 5 automobile companies accounted for the proportion of more than 99%, especially now there are only 5 passenger car enterprises.


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Total Automobiles Production by Makers in Korea(2010)

Kia33.16%

GM Korea

17.42%

Hyundai

40.81%

Renault Samsung

6.44%

Ssangyong

1.87%

Daewoo Bus0.08%

Tata Daewoo

0.21%


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World China

Company 2011 Sales (10000 units)

Company 2011 Sales (10000 units)

1 General automotive

903 Shanghai

Auto

396.6

2 Volkswagen cars 816 Dongfeng

Auto

305.86

3 Toyota cars 795 First Auto 260.14

4 Renault-Nissan Alliance

739 Changan

Auto

200.85

5 Hyundai Motor

Company

659 Beijing

Auto

152.63

The top 5 auto companies in the world and China（2011）

2.Automobile enterprise competitiveness


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2011 Annual World 500 strong automotive business operating income rankings

Industry ranking

Global ranking

Company name

Operating income

( million Usd)

Profit ( million

Usd)

The net interest rate%

8 55 Hyundai Motor Company 97408.4 4707.6 4.8

11 145 Dongfeng motor

55748.2 2479.7 4.4

12 151 Shanghai

Automotive 54257.2 1914 3.5

14 197 China Faw

group 43434.4 2125.5 4.9

15 226

South industry group

37996.4 224.7 0.6


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3.Independent development ability


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Share of own brand of passenge cars in China

0

10

20

30

40

50

%

Production% 44.6 41.9 41.3 41 46 45.9 42.2

Output value% 23.1 23.4 24.6 22.1 25.6 21.6 19

Profit% 24.8 18.6 18.2 18.5 10.1 9.4 4.7

2005 2006 2007 2008 2009 2010 2011


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Automobile Production and Exports in China and Korea(2011)

(Thousands)

Classificaton China Korea

Production 18418.9 4,657

Domestic Sales 17604.6 1,475

Exports 814.3 3,152

Share of Exports 4.42% 67.68%

4.Export competence


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Auto export and import of Korea to China

545.9707.3 669.7

857.3977.3 914.3

1755.7

2836.8

1.5 2.3 8.6 63.4 43.5 21.8 49.3197.3

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

2004 2005 2006 2007 2008 2009 2010 2011

million usd

Export Import


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5.Overseas investment China In recent years, Chinese automobile industry overseas investment and overseas production has just started. The overseas auto production is still very small. in 2004, SAIC bought a stake in Ssangyong Motor, which was the first overseas mergers and acquisitions for Chinese automobile enterprises, but by 2009 to fail. In 2010, Geely Automobile Co successfully acquired the Volvo Car Corp.


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Korea In 2006 and 2010,Hyundai overseas factory output broke through one million and two million units. In 2011, Korea overseas auto output has been more than three million units,which accouts for about 50% of the total aut output of Korean aotu company. Currently Hyundai Motor has six overseas plants in the US., India, China, Turkey, Russia and the Czech Republic.


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Enlightenment Support of policy and market forces must

be combined

Effective competition is the important

power to enhance competitiveness

Independent research and development

ability is the key of competitiveness

International competition ability is the

real industry competitiveness


2012/10/12 49

Thank you

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