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“Automobile Industry” and
“Macro-economy” in China
By Linzhe Li, Yurui Lai,
Bingchun Gan.
PURPOSE AND AGENDA
In ancient time, Asia is the core of the world, including its economic power. Especially in agriculture and manufacturing and military, Asian contributed a lot to the world progress. However, after 16th century, colonization made Asian economy suffer and national industries lagged behinds.
Ancient Asian Economy
Song dynastyThe neo-Confucianism:
Zhu Xi, 朱熹宋明理学He inherited Neo-
Confucianism from Han Yu, and Li Ao in Tang Dynasty, and then developed it well in Song Dynasty.
Plus: invention----techniques----ancient
technology
Today’s main powers
REAL GDP GROWTH RATE IN 2011
Why do we choose auto industry?
As one of the pillar industries, automobile can be regarded as the second expensive thing to buy after real estate. (a representative of macro-economy in some sense)
Auto is a very complicated product with resources, techs and so on, so the input & output coefficient is quite high.It would have higher contribution than other normal industry.
Incomplete and brief table of input & output coefficient
(产业链关联指标 )
Different country with
different storyThe economy is highly-advanced. Residents in Japan are enjoying developed life quality.
In Japanese domestic economy, service industry accounts the largest status than other 2.
5.00%29.50%
63.40%
Industries accountabil-ity
primary industry Secondary industryservice industry
Implication: technologies cast
own power The industry proportion shows matured industrial
economic growth model.
Japanese automobiles dominate world market with the US and Germany.
technology = power to bring high quality
competition in.
Japanese automobile industry contains various technologies like engine, gearbox, cooling system.
Example: these 3 auto giants won’t have high class competition if they have no own technologies to support.
South Korea implication
The economy of Korea started to take off since 1960s. After 1997 Asian financial crisis, the growth rate decreased to middle level and maintains 5 -6%.
Exports and domestic consumption both played heavy role in Korean growth. Especially domestic demand for automobile, Hyndai Mortor, Kia Motor, Daewoo, and Ssangyong
together stand for over 90% of market.
The culture to advocate for national brands is highly regarded.
To Chinese automobile industry, we ask 2 main questions.
First, do Chinese automobile companies make “own cars”? If no, how can Chinese vehicle have more independent technology?
Second, are Chinese willing to buy own brands car? If no, how can the industry change it?
The issue we are worrying
Supply side:
lack of own technology cannot support domestic brands to develop high quality competition and then benefit economy.
Demand side:
Chinese domestic consumers want to have cars, but not home brands. It means no stimulus.
The no.1 automobile
market
The demand and supply
Facts: By national statistics, in 2011, the total sale
in China was 18505100, and there were about 18418900 automobiles manufactured in 2011.
Although the growth rate of last year was below 3 percent throughout 13 years, the market accountability ranks number one in the world.
Implications:
Now with the increase of Chinese consumers’ purchasing power, more and more Chinese people are going to purchase private cars. Especially in urban life , having own transportation tool is becoming necessary.
As we know: Y=C+I+G (with
out EX and IM)I=Y-C-G
I=SSO S=(Y-G)-C
C is relatively low, even though comparing with the high speed of per capita GDP growth.
Statistical information
Good saving habits give huge potential to this
consumption
Good saving habits give huge potential to this
consumption
However….
The auto expense are not spent on domestic car
makers
But, the independent brands are not benefiting from the huge demand and supply.
In brands classification, there are independent Chinese local brands, German brands, American brands, Japanese brands, and Korean brands mainly. On the other hand, in the nature of company, there are independent brands corp., joint venture and pure foreign import cars.
Independent brands, Japanese German American
To use Toyota as an example
The Japan Automobile Manufacturers Association has data complete as of the end of 2004 that shows Toyota has 35% of the entire Japanese auto market. And this doesn’t include the market share its majority-owned subsidiaries control.
SO, COMPARE TO CHINESE ALL DOMESTIC BRANDS TOGETHER ACCOUNT EVEN LESS THAN 30%.
2011 ratio of auto sales share
in Chinese MKT
35%
61%
4%
Sales
independent brandsjoint venturepure import
The willing of Chinese consumer
Two issues waited to be solve
From supply side:
????Why don’t we have
technology????
Pure Chinese capital
Although own brands are expanding, some core technologies are
not mastered. The shortage restricts us to develop high-class and
high quality autos. First example:
High-horsepower engines(大马力引擎 ):
Second example:
The gearbox(变速箱 ) Aisin aw, Zf and Jatco
1. Capital input The capital being put into R&D was only about 1.1% in
GDP in 2001. To compare with USA and Japan, they are 2.79% and 2.92% respectively.
Time matter: Considering the lag from time, Chinese R&D has already lagged behind.
Inadequate capital investment in the
Chinese government on the
automotive industry
In recent years, the development of Chinese industrial enterprises is
particularly obvious, especially on scientific and technological innovation
activities. But there are still a low proportion of investment,
staff shortages and the irrational structure of
government investment to support scientific and
technological activities to the enterprise.
Enterprise side
The enterprise technology spending of government funds accounted for only 3.7%.
For example, Jianghuai Automobile makes ships as well cars. So what we see is out of concentration and long-term strategic plan.
2. Education---- especially for
blue-collar Bad condition for
vocational students
Lack of regulation lead to many unqualified engineer school .
People tend to look down upon students who learn vocational skills. ( compare to German blue-collar)
Romer-Mankiew-Weil Model
Y = A Ka Hb L1- -a b
if Y is the output of Auto industry in China.
H would be the education level of particular vocational talents.
3.policy, the way to acqure techlonogy
The story of “Market exchange technology ”.
to built Joint venture and acquire technology in this way
CAPITAL EXCHANGE TECHNOLOGY
CHINESE CAPITAL BUY OUT THE FOREIGN CORPORATE.
Further example Blind producing
No absorbing the core techonlogy
“Selling Cars to Rural Area” policy
Increasing sales with lower price or old for new service
Completely rely on the policy
4.From the perspective of
law
frequent IP infringement
Simply copy the design of other foreign car makers
Copy the core technology rather than developing its own technology
BYD coupé Mercedes Benz- CLK
Shuanghuang nobleSmart for two
Question???? for you
do you know any Chinese auto brands?
Would you like to buy own car or foreign car honestly?
From demand side:
what’s the psychological tendency of favoring
foreign-based autos. The culture of buying famous foreign brands auto:
the weak side of culture:
vanity
Pure
import
Joint venture make
High demand on foreign
car People who have the willing and ability to cars, often
tend to choose foreign brands.
Besides owning a foreign based car makes consumer feel classy, consumers trust the quality and reputation.
Conclusion: own brands are not sufficiently supported and favored.
The repair rate of autos
Independent brands, European, Korean, American, Japanese
Low demand for domestic
car Higher frequency to get repaired than foreign-based
and imported manufacturing.
The popularity and credibility of domestic auto brands are not fully accepted in Chinese MKT.
Conclusion: domestic customers don’t trust home-based automobiles.
The “SUCCESS” of joint-venture model
Weak Price advantage Joint ventures manufacturer account the biggest
part of MKT, still about 60% till 2011, which dominates price.
Before China joined WTO, there are 120% tariff on whole auto import.
Joint venture manufacturers brought parts of car into China with very low tariff, and then assemble in China with mature techs by economy of scale.
WHAT WE ARE REALLY TRYING
TO SAY: Automobile industry is only one corner of this
phenomenon.
To reflect the whole economy, the growth model, especially manufacturing side, are generally under this kind of unsustainable circulation.
Therefore, if China can not master own technologies and techniques and have support from domestic market, the growth today won’t be sustainable in the future.
The “smiling” curve
The common example---- Apple
inc. in China Supply:
Apply design products from GROUND-UP, and master own high-techs to support itself development.
contrast
In mobile phone MKT, currently there Android, Symbian, Windows Mobile, and Apple IOS as operational systems. But there haven't been any competitive Chinese effective independent system supporter.
demand:
Iphone maniac are everywhere in Chinese mobile phone MKT.
Also android phone, Sony Ericsson and Nokia stand solidly.
Chinese customers don’t like to support domestic brands, because of lagged usage and lack of popularity.
In addition: from competitors view
The most popular PC operational system
Microsoft Windows is the most popular system used in Chinese normal customers, which stimulates the fast development of Chinese computer MKT.
But, because of popularity, there are a number of pirate version of it.
However, Microsoft never took authentically severe penalty to Chinese MKT,
the popular pirate version always keep the domestic development at low level
The truth:
We are facing problems and obstacles from aspects.
How can be solved?
In general
For government Policy should have right direction, so as to avoid
impulsive doing in policy making and regulations.
Government could aim longer benefit in core value, instead of just caring about GDP growth. We believe there should be a balance.
Legislate strict law for IP protection
For enterprise From Max Webber, we need more Protestantism
style of manufacturers. (meaning: doing real productive work with capital)
No copy from others design, we may learn, but we eventually want own ground-up product.
Concentrating on long-term development, never being restricted by little benefit in front of eyes.
Customer need to support
domestic product It’s interacting. Only if the product progressed, customers will accept.
We agree what Jackie Chan said: “every time I attend ceremony, I wear Chinese traditional costume. If each Chinese who prefer foreign garments would like to spend a little bit on Chinese-based clothing, the Chinese domestic clothing industry will catch up the world-class.”
At last, 3 aspects work
together
This is how we believe Chinese economic revolution to go.
Question for the future
Background:
There are some policies now that it should support new techs car, like electric cars, but at the condition of lacking core technologies, will this be a real good idea?
If you are policy maker, under this situation, would you spend capital doing core tech development or new tech development?
References: http://www.360doc.com/content/06/0302/21/1656_74731.shtml
http://auto.163.com/special/eight/
http://auto.ce.cn/xwzx/201203/15/t20120315_21132255.shtml
http://www.cnauto.com.cn/zhishi/qc50dq.htm
http://wenda.tianya.cn/wenda/thread?tid=699976ab6d21c380
http://seekingalpha.com/article/5610-toyota-dominates-japans-domestic-auto-market-market-share-ranking-tm-nsany-hmc-dcx
http://www.bis.org/publ/work312.pdf
http://www.ritholtz.com/blog/2009/05/china-consumer-spending-vs-savings/
http://east_west_dialogue.tripod.com/id1.html
http://news.163.com/12/0314/21/7SJA8N2300014AEE.html
http://www.wilsoncenter.org/sites/default/files/2-feature_1.pdf
Thank you for your attention
Question?