China Commercial Vehicle OUTLOOK

China State Information Center ACT Research Co., LLC • www.actresearch.net

COMMERCIAL VEHICLES Forecast

Q1 2014

Contributor to Blue Chip Economic Indicators and WSJ Economic Forecast Panel

The China Commercial Vehicle OUTLOOK is published quarterly by Americas Commercial Transportation Research Company, LLC (ACT), 4400 Ray Boll Blvd., Columbus, IN 47203. Phone: 812-379-2085, Fax: 812-378-5997, e-mail: [email protected] Copyright 2014 by ACT with all rights reserved. Reproduction, copying, or publication of this report in whole or part is not permitted without prior approval. This document is for internal use only. Questions and subscription requests should be directed to K.W. Vieth, Publisher. TABLE OF CONTENTS

Page(s)

Report Highlights ...... 1

Preface: The Importance of China’s CV Market ...... 2

Macroeconomic Analysis ...... 3-8 Economic Overview Short-term Forecast

Transport Environment & Industrial Policies ...... 9-19 Market Environment Industry Policies

Commercial Truck & Bus Market Performance ...... 20-22

Forecast Summary ...... 23-30

Forecast Data ...... 31-32 Short Term Forecast to Q4’14 Long Term Forecast to 2018

Market Competition ...... 33-38

Special Features ...... 39-41 Impact of NG Fuel on China’s Commercial Vehicle Market China NS4 Emission Standards Implementation Implications

Appendix ...... A-1 Data Specifications OEM Alliances

Click paragraphs to zoom to more details FORECAST MACROECONOMIC ANALYSIS  Heavy and medium truck (including tractor)  The pace of China’s economy eased slightly in markets will continue to grow in Q1’14, although Q4’13, with growth of 7.7% on a y/y basis. modestly.  Infrastructure and manufacturing investments  Declining growth is expected in the large and continue to be strong, but Q4 did see some medium bus segments in Q1’14, with growth slowing. forecast to enter the negative side of the ledger during Q2.  Exports ended Q4 at 4.3% growth. Imports ended the year up 8.3%.  The need for freight vehicles will rise corresponding to upticks in consumption and  Confidence rose again in December, reaching foreign trade, but only after existing trucks are 102.3 and declined to 101.1 in January 2014. engaged.  Q4’13’s CPI was lower than expected.  The next two quarters will see moderation in  PPI flat-lined in Q4 as a result of surplus business and leisure travel. Growth is expected production capacity. to be largest for the school bus and LNG transit bus markets.  Expectations for the next two quarters call for growth in the neighborhood of 7.4% in Q1’14 and MARKET COMPETITION 7.6% in Q2.  Dongfeng Group, CNHTC, and Shaanxi TRANSPORT ENVIRONMENT & INDUSTRIAL Automobile Group maintained their positions as POLICIES the three largest heavy truck manufacturers in Q4’13.  Manufacturing investment was a drag to GDP in Q4, which fell to 7.7%.  FAW maintained its first-place market share ranking in Q4.  Manufacturing overcapacity continues to drag industrial investment.  Major movement occurred in the medium duty market again in Q4, an indication of intense  Concern continues regarding real estate inflation competition. pressures as well as speculative investment.  Yutong Group’s Q4 sales skyrocketed to 34%,  All investment, except power generation, from the previous quarter’s 24%, propelling them declined in Q4. over King Long and into the bus market’s lead position.  New regulations restricting local debt are expected to pose downward pressure on SPECIAL FEATURES infrastructure per capita.  Increasing costs of diesel and the growing  China’s foreign trade situation continued its unacceptable levels of air pollution have created improvement in Q4 as domestic and international an opportunity for the development of LNG- economies improved. powered units.  LNG buses comprise more than 50% of the total MEDIUM & HEAVY TRUCK MARKET new energy bus market. PERFORMANCE  Heavy duty truck sales rose dramatically, ending  Full implementation of China NS4 has been the quarter with 68% y/y growth. delayed until January 1, 2015. The major reason for the delay is the lack of availability of lower  Significant heavy duty tractor demand continued sulfur fuel. in Q4, up 72% to 74,400 units.  The major difference between the implementation  Medium duty truck demand declined y/y for a process in China and the rest of the industrial second consecutive quarter in Q4, down -29.2% world is that China controls the change based on to 58,300 units. “registration” date rather than “manufacturing”  Q4’13 domestic sales of large and medium buses date. rose 6% y/y to 36,100 units.

THE IMPORTANCE OF CHINA’S MARKET: Although many second and third tier component With close to 50% of the world’s commercial providers continue to work with 1950s-1970s vehicle production, China’s medium and heavy technology, truck plants and key suppliers have duty truck markets are the largest globally, invested in state-of-the-art machine tools and according to data provided by the International manufacturing processes from around the globe. Organization of Motor Vehicle Manufacturers Chinese suppliers are currently using the same (OICA). China’s economic revolution and design and analysis software used by their construction of the highway system have North American and European counterparts. spurred a boom in domestic Chinese Because they are working with large commercial vehicle demand. Infrastructure international firms, they are getting the same building is occurring at a frantic pace, and the quality and process certifications procured by new interstate system with new regulations is anyone who wants to work with big multinational changing the way freight is hauled. Progress in firms. logistics will result in more efficient freight EXCHANGE RATE: The exchange rate transportation, supporting the anticipated shift to between the Chinese Yuan (¥ or RMB) and the a more domestic-oriented economy, but will $US is shown in the graph below. From the likely moderate long-term commercial vehicle middle of 2008 to Spring 2010, the exchange demand. rate remained at approximately ¥6.80 for each The steady and sustained growth of China’s $US. By the end of February 2014, as reported economy will garner close attention from other by the Federal Reserve, the exchange rate had worldwide vehicle manufacturers and suppliers, weakened to ¥6.07/USD. and the country’s market share is set to continue at solid levels for years to come.

China/U.S. Foreign Exchange Rate January 2008 - February 2014 Chinese Renmimbi to One U.S. Dollar

Yuan per US$ 7.50

7.25

7.00

6.75

6.50

6.25

6.00

5.75

5.50 08 09 10 11 12 13 14

ECONOMIC OVERVIEW China Real GDP The pace of China’s economy eased slightly in Y/Y Percent Change Q1 '05 - Q4 '13 Q4’13, with growth of 7.7% on a y/y basis. That Percent was down slightly from the 7.8% pace of Q3, 18 16 which was the strongest since the 8.1% rate 14 posted for Q1’13. Full-year 2013 real GDP 12 growth was 7.7%, down slightly from 2012’s 10

7.8% expansion and above the 7.6% market 8 prediction. For perspective, 2012’s expansion 6 was the slowest annual advance since 1999, 4 and growth was 9.3% in 2011 and 10.4% in 2

2010. We expect growth to slow a bit with GDP 0 123412341234123412341234123412341234 increasing around 7.5% y/y during the first two 05 06 07 08 09 10 11 12 13 quarters of 2014. Source: People's Bank of China/National Bureau of Statistics ACT Research Co., LLC: Copyright 2014 Two factors contributed to Q4’s slowdown. First, government policy shifted from stabilization to economic structure adjustments after the Q3 growth pop. Second, recent stimulus policies masked the industrial overcapacity problem. Once those policies were relaxed, the market’s capacity surplus became more evident. As a result, manufacturing and infrastructure investment slowed, the path of the PPI reversed, and industrial production softened. A look at the economic sectors indicates that consumption growth hit its 2013 peak during the fourth quarter, reaching 13.7% m/m in November, before declining to 13.6% in December. This remains slightly behind the 14% pace for the same time one year ago, tempered by the “Eight Provisions” implemented earlier in the year to combat extravagant spending by government officials. These provisions resulted from a December 2012 meeting of the Political Bureau of the CPC Central Committee, which detailed ways for the government to be better received by the general public. Many of these provisions centered on frugality, the reduction of by policies discouraging multiple-home unnecessary spending, and the scaling of “pomp ownership; it grew between 19% and 20% as and circumstance” during official and necessary opposed to the 21% to 23% growth rate earlier events. Q4 consumption was buttressed by in 2013. extraordinarily strong online shopping. E- commerce continues to grow in popularity. Imports and exports both ended Q2 in negative territory, down 0.7% and 3.1%, respectively. By Infrastructure and manufacturing investments the end of Q3, amid an improving international continue to be strong, but Q4 did see some environment, both rebounded with imports slowing. Urban fixed asset investment grew just growing 7.4% and exports declining by only under 20%, while the pace of manufacturing 0.3%. While not yet near the double-digit export investment slowed slightly, ending Q4 at 18.5%. levels of 2012, China’s exports are being The downtick was credited to growth-stabilizing propelled by recovery in the European and policies that expired during the quarter. Real American economies. Exports ended Q4 at estate investment continues to cool, restrained

4.3% growth, after a one-month spike of 12.8% in November. Imports ended the year up 8.3%, the highest monthly increase since July 2013. Inflation, as measured by the CPI, rose at a 2.6% pace in both 2012 and 2013. The year’s CPI hit 3.2% for the second time in October, before sliding to 3% in November and 2.5% in December. January 2014 CPI also arrived with 2.5% growth. Recent price acceleration resulted mainly from rising food prices. The NPC target for 2013 CPI growth was set at 3.5%, while 90bps above 2012, that target was lower than the NPC’s previous 4% target. As of December, inflation at the producer level was down 1.4% y/y and remained flat m/m during all three months of Q4. According to China’s National Bureau of Statistics (NBS), PPI continued to fall in January 2014, dropping to -1.6% y/y. The measure has been in negative territory for the past 23 months. Investment: Urban fixed investment grew at a 20% q/q pace in both Q2 and Q3, off 100bps from Q1’s pace. Although it declined slightly in Q4, urban fixed asset investment still finished Consumer confidence at the end of Q2 was December above 19%. Real estate investment 97.0, its lowest point since November 2011, but slowed by an equal amount between the year’s this indicator jumped to 99.8 by the end of first two quarters, reaching 21% in Q2 and September. October’s reading spiked to 102.9, dropping to 20% in Q3. After small declines in before dropping to 98.9 in November. According October and November, real estate investment to the NBS, confidence rose again in December, finished Q4 at nearly 20%. Manufacturing reaching 102.3 and declined to 101.1 in January investment growth began a slow acceleration in 2014. Q3 and by September stood at a rate of 18.5% Sales of home appliances and video equipment y/y. The indicator hits its yearly high at 19.1% in grew an average 14% in Q4. November’s spike October, before falling to a quarter-ending placed Q4’13 sales well above the 10% 18.5% y/y. Investment will likely maintain its expansion seen in Q4’12. Although furniture current plateau in the next two quarters as the sales increased an average 22% in Q4’13, that economy stabilizes. However, the potential was far below last year’s 29% Q4 growth. On exists for decelerating investment in the other hand, construction and decoration manufacturing amid the current overcapacity, material sales rose an average 25% in Q4’13, although this may be tempered somewhat if 3% higher than the average sales in the same inflation remains below the 3% mark. quarter of 2012. Consumption: Retail sales growth in Q4 was up Foreign trade: Amid Q1’13 policy incentives, slightly, rising from Q3’s 13.3% end to 13.6% at both export and import volumes spiked sharply, the end of Q4. Retail sales ranged between 12 growing an average 19% and 9% q/q, and 14% in 2013, down from 2012’s 14-15% respectively. Foreign trade slowed in Q2 as range. Strong consumer sentiment helped dramatically as it rose in the previous quarter; support consumption in Q4, as did the online the average m/m export growth in Q2 was 4.2% shopping “festivals” These “festivals,” occurring while average import growth was 5.3%. on 11/11 and 12/12, should be considered Additionally, 1H’13 saw the State Administration similar to the United States’ “Cyber Monday” of Foreign Exchange’s (SAFE) Notice on type of e-commerce spending surge.

MACROECONOMIC ANALYSIS

improved world economies, the latter’s restricted growth resulted from rising costs and declining productivity. China continues to expand Free Trade Zones (FTZs), indicating commitment to financial and economic reform by the new leadership. However, not all foreign activities are permitted in these areas. Many focus on financial and service industries more than manufacturing. One of the restrictions directly impacting commercial vehicle operations and demand is a restriction on investment in motor transport companies engaged in cross-border road transportation. The full list of restrictions is too long to be included here but can be found through an internet search for “Special Administrative Measures for Foreign Investment Access to the China (Shanghai) Pilot Free Trade Zone.” Inflation: Prices as measured by the CPI rose at a 2.6% pace in 2012 and 2013, with the potential for greater inflationary pressure in 2014. Relevant Issues Concerning Strengthening CPI % change y/y Management of Foreign Exchange Inflow. The Jan 2013 2.0% policy was implemented to reduce abnormal Feb 2013 3.2% cross-border funds, or “hot money”, and to Mar 2013 2.1% address speculation that China’s trade surplus Apr 2013 2.4% data had been over-inflated to veil monies in the May 2013 2.1% wake of the Yuan’s appreciation. June 2013 2.7% At a news conference in early July, Zheng July 2013 2.7% Yusheng, spokesman for the General August 2013 2.6% Administration of Customs, said that the September 2013 3.1% country’s foreign trade is facing “severe October 2013 3.2% challenges” and predicted that adjustments November 2013 3.0% would continue for the next 6 months. Later that December 2013 2.5% month, Premier Li Keqiang noted, “China faces January 2014 2.5% a complex and challenging environment, with Q4’13’s CPI was lower than expected because exports and imports easing their pace of the economy grew at a slower rate than growth.” He added, “We need to advance anticipated; the supply of vegetables was innovative mechanisms to enhance trade facilitation and enterprises’ competitiveness.” His statement was coupled with announcement of temporary customs clearance simplification, fee adjustments, and operational easing. Foreign trade fared better in 2H’13, with imports in positive territory for all six months and exports only negative in September. Imports ended December with 8.3% growth, while exports ended the year’s final month at a 4.3% increase. While the former’s rise is being attributed to

MACROECONOMIC ANALYSIS

greater than it has been in previous years as a The central government continued its prudent result of warmer winter weather, and seasonal monetary policy in Q4’13, as both M1 and M2 pork prices fell. stabilized. New loan volume in Q4’13 remained below expectations but did increase in all three PPI flat-lined in Q4, having no m/m changes months of the quarter when compared to the from October through December as a result of same months in 2012. surplus production capacity. Year-over-year growth fell to -1.5% in October, before ticking upward and reaching -1.4% in the quarter’s two final months. PPI % change y/y Jan 2013 -1.6% Feb 2013 -1.6% Mar 2013 -1.9% Apr 2013 -2.6% May 2013 -2.9% June 2013 -2.7% July 2013 -2.3% August 2013 -1.6% September 2013 -1.3% October 2013 -1.5% November 2013 -1.4% December 2013 -1.4% January 2014 -1.6%

MACROECONOMIC ANALYSIS

SHORT-TERM FORECAST China’s Q3 real GDP performance surprised a bit on the high side, arriving at 7.8% y/y. The economy continued to grow in Q4 but at a slower 7.7% pace. Nevertheless, softness continues and expectations for the next two quarters call for growth in the neighborhood of 7.4% in Q1’14 and 7.6% in Q2. Full-year annual growth for 2014 is forecast at 7.5%. Monetary policy should remain mildly restrictive in an attempt to control inflation, while caution dominates consumption. Investment is the primary driver for economic development. The economic slowdown caused by overcapacity that was illuminated in November 2013 will continue through 1H’14, resulting in further softness in the manufacturing sector. Lackluster investment momentum is expected near term for the following three reasons:  After the Third Plenary Session in Q4’13, the central government began adjusting the way local government success is measured, of lower growth. Online shopping festivals in including placing emphasis on the Q4’13 and the Chinese Spring Festival in importance of the environment. These February 2014 stimulated consumer demand. measures are gradually being implemented Additionally, urban income has rebounded from to prevent fiscal risk and will be beneficial its Q2’13 trough and retirees have received a mid- to long-term. However, they will pension pay increase. Coupled with high negatively impact short-term investment at consumer confidence levels, consumption is the local level and will reduce funding to forecast to rise in Q2’14. However, efforts to projects recently started. combat corruption and advocate government thrift that were implemented in 2013 will  Many local governments are plagued with continue to restrain high-end consumption, such high debt-to-revenue ratios, rapidly growing as entertainment-related products and services, debt, and high repayment levels. To until a new norm is achieved. counteract these concerns, the central government is attempting to adjust debt Foreign Trade: As other economies recover, structures and this will hinder short-term foreign trade will remain strong. Despite actual infrastructure investment and heavy duty demand increases, however, this may not be truck sales. Additionally, it could drive a represented nominally as comparisons will be continued shift to tractors from dump trucks. against the inflated export data from previous years. Factors impacting the forecast include:  Financial reforms, including the use of a market system, are increasing interest rates.  Improvement in global economies not seen This was noted twice in 2013 when for the past five years provides new hope for monetary shortages were reported in the export growth, as long as there are no middle and at the end of the year. unforeseen tailwinds. Investment funds are getting more difficult to  Foreign trade will be aided parallel to the obtain and this pressure will decrease local strong U.S. dollar. Though appreciating a investment efforts. little against the dollar, it will appreciate Consumption is forecast to be stable in Q1’14, more when compared to other currencies as the country’s economic cycle enters a period and this will enhance the RMB’s exchange

MACROECONOMIC ANALYSIS

rate, as well as China’s export continue at a slow pace, although the food competitiveness. component will need to be closely monitored. PPI, which up to the most recent quarter has  Q1’14 export statistics may be skewed when been contracting, should be kept in balance, compared to the false trade data of the maintaining the equilibrium achieved in late previous year. By Q2’14, this comparison is 2013. Prudent fiscal policies will remain in effect expected to be mitigated and growth will over the near to medium term to assist in these rise. efforts. Import growth will likely remain subdued, as Real estate inflation and speculation continues domestic demand, manufacturing investment, to be a concern. The pressures in the major and corporate profits cool. cities will continue to be the subject of policies to Inflation: A close watch will be kept on the prevent speculation and the resulting price growth rate of domestic consumption. Although impacts. The efforts of “townization” will there has been explosive growth in on-line continue, as an attempt to reduce pressures of shopping, the impact on total consumption has population shifts to major urban areas and allow been relatively minor. The shift of the Chinese for a development away from the high economy from an export-driven system to more population density eastern areas. domestically driven will continue, but it will be closely watched to prevent the build-up of any significant inflationary pressures. CPI will

TRANSPORT ENVIRONMENT & INDUSTRIAL POLICIES

TRANSPORTATION ENVIRONMENT resulted in Q4’13 pre-buy pressures. Again, the policy is not being implemented Overview nationwide, but rather will depend on wider Q3’s uptick in GDP growth to 7.8% was supported fuel availability at the local level, although by an upswing in manufacturing investment. there will be more impact in the major However, manufacturing investment was a drag to metropolitan areas. This is causing GDP in Q4, which fell to 7.7%. In addition, real uncertainty and pre-buys continue ahead of estate investment remained stable and local implementation. Continuing concern over infrastructure investment declined, the latter the success of both China IV regulations creating a negative impact to specialty truck centers around the widespread and consistent demand. Other factors influencing Q4 availability of diesel fuel with the appropriate transportation demand included: sulfur levels for the emissions equipment being installed on commercial vehicles.  An explosive growth of online shopping that  The Hybrid-power Bus Promotion Project, drove demand for freight transportation. launched at the end of Q3’12 by four  Export growth rose moderately as U.S. and Ministries including the MIIT (Ministry of European economies grew stronger while Industry and Information Technology) ended imports slowed. at the end of May. This resulted in purchasing of large hybrid-powered buses prior to the  Bus demand was supported by the Q4 expiration of the available subsidies. The release of new subsidy policies for energy backlash was a drag on Q3 bus sales. On efficient vehicles, despite the fact that these September 17, 2013, the four Ministries jointly subsidies are smaller than those issues introduced a continuation notice for new previously. energy vehicle subsidies, which slightly re-  Fiscal expenditures increased at year’s end, energized bus demand. which resulted in an upswing of bus sales.  On August 1, 2013, value-added tax (VAT) began replacing business taxes for the One policy from earlier in 2013 had residual service sector. This includes the impact on Q4 commercial vehicle demand, while transportation industry and is expected to two others had minimal effect during the quarter benefit the truck market. (More details are but are predicted to be more significant long-term. available on page 17 of this report in the In addition, the third Plenary Session of the 18th Industry Policies Section.) CPC Central Committee was held in Q4 from  The third Plenary Session of the 18th CPC which policy reforms are expected to create Central Committee was held in Beijing from downward pressure on commercial vehicle November 9-12. Discussions resulted in a demand short-term before providing long-term series of reform proposals for the Central support. Economic Working Conference, the Central  Implementation of the National IV Exhaust Urbanization Conference and the Central Standard for Heavy Commercial Vehicles Rural Working Conference. Reform policies scheduled for July 1st sparked pre-buys for are expected to be comprehensive when many commercial vehicles earlier in 2013. released in 2014, with short-term downward The market reacted to the increased cost economic pressure but longer-term growth associated with vehicles equipped to meet potential. China IV standards, which are similar to Euro IV regulations. The pre-buy impact varied MARKET ENVIRONMENT widely, as implementation of the new regulations varied regionally, although most Construction Market influence was reported in large cities on the Investment slowed dramatically in Q4’13, after east coast. This variability was in response to remaining at a low, but stabilized level since limited availability of low sulfur fuel, a Q3’12. Manufacturing overcapacity continues to requirement for operation of the trucks with drag industrial investment, despite the central the new emissions equipment. Another wave government’s effort that began in Q2’13 to of implementation is expected in Q1’14, which

Compared to 2012’s high level, construction investment growth in 2013 has slowed. However, activity remains positive and new projects continue to be started, although at a slower pace. In December, roughly 33,000 new projects were added month over month, which translates to 66,000 new projects y/y. However, investment volume didn’t increase significantly, signally that the December additions were smaller-scale projects. Local investment continues to be the major source of momentum, but growth in this category has slowed, with y/y gains dropping to address the overcapacity issue by restricting the 20% by the end of December. The quarter’s launch of new projects. Much of this decelerating average monthly investment growth was less than came from investment in tertiary industries. 21%. Central government investment surprised on Investment growth in primary industries remains the upside again in Q4, rising to an average high as the government proceeds with its growth monthly investment growth just over 11%. This strategies. However, the governmental adjustment comes as debt continues to mount and headwinds and control of investment in steel, cement and from central government regulations are factored coal industries led to slower growth for the into the situation. In an effort to control local debt secondary industries, despite real estate market and investment, the central government will begin stabilization. Tertiary industry growth slid in associating the project with the particular person correlation to the slide of infrastructure assigned to the effort on a permanent basis. This investment. Additionally, high local debt forced the new policy is expected to inevitably reduce local central government to strengthen regulations to investment growth rate. mitigate risks; this will restrain investment growth in the short-term. For clarification, production of raw materials and basic foods/agriculture make up primary industries, while secondary industries consist of finished goods manufacturing, processing and construction. Tertiary industries are the economy’s services sector, such as retail and wholesale distribution, entertainment, restaurants, banking, health care and law. China’s economy continues its transition from agrarian to urban. The most recent official figures indicate that 52.6% of China’s mainland population resides in urban areas. This shift will continue, as China’s NBS (National Bureau of Statistics) projects urbanization will reach 75% of the mainland population by 2034. Attaining this very aggressive target will be helped by the “townization” efforts, where urban movement is more localized, with urban areas created closer to the rural areas. The result would be a shorter move for the relocating population, and an easing in the continual issue of ever-increasing population density in the eastern/coastal area of the country.

The recently completed third plenary session of the 18th CCP Central Committee did express concerns regarding imbalances in real estate investment. Implementation of regulations to address those concerns will bring great uncertainty to the development of the real estate industry. For the time being, the main focus for the real estate industry is structural constraints. In first tier cities the housing price keeps rising because demand is far greater than supply, but in third and fourth tier cities prices are lower as supply is greater than demand. In the next six months, regulations regarding housing construction and purchase are expected to tighten in first and some second tier cities, but policies may be relaxed in third and fourth tier areas. Tight controls will remain on the purchase of second and third homes. In first and second tier cities where demand is greatest, housing prices will continue to rise, but prices are expected to remain low in third and fourth tier areas where oversupply has been prevalent for quite some time. This difference in regulatory treatment could be encouragement as an interim step in the ongoing rural-to-urban population shift, termed “townization.” This effort supports the continued rural-to-urban population movement, but attempts to redirect that population shift to smaller urban areas outside of the population-dense first and Real Estate second tier cities that are concentrated in the Skyrocketing real estate sales began in 2012 and eastern/coastal area of the country. lasted through Q1’13 when sales increased 61%, while the number of houses sold spiked at 37%. Three months later, the story was quite different Infrastructure Construction with real estate sales, while still strong, growing Infrastructure investment in Q3 was elevated and 43% and units sold up 29%. Sales growth at the a significant source of support for economic end of Q3 was down to 34% while unit sales growth. Investment in rail, road transport, and growth reached 23%. The pace of commercial water conservancy maintained double-digit growth housing sales and volume continued to cool in throughout the quarter. All investment, except Q4, shrinking to growth of just 8% and 14%, power generation, declined in Q4. At the end of respectively. During the same time, housing Q3, rail transport investment grew 10%. Growth of prices continued to rise. these investments oscillated in Q4 from 4% to 2%, Concern continues regarding real estate inflation before ending the year at 6%. While road pressures as well as speculative investment. As transportation investment slipped, it did fare better regulations are implemented and enforced, a than rail. This sector began Q4 with 24% growth, gradual decline is expected in this market. Real which only slid to 19% by the end of the quarter. estate remains pivotal to the economic vitality of Water conservancy and environmental and public many provinces as they struggle with the balance facilities investment grew at a slightly slower pace, between housing supply and demand. just 27% at the end of 2013 compared to the 30% growth rate seen at the end of Q3. Power generation investments were the only area where

investment accelerated, ending 2013 at just over 18%. New regulations restricting local debt are expected to pose downward pressure on infrastructure per capita, causing growth to decelerate in Q1. However, potential for investment to rebound exists in Q2 following administrative sessions expected in March that should restart investment efforts.

Central and Local Government Investment Central government revenue growth was 18% in Q4, following a 12% jump in Q3 and an 8% rise in Q2. After a year’s work, revenue managed to exceed the 13% growth of Q4’12. Revenue growth for local governments rose 14% in Q4, jumping from Q3’s 11% growth rate. This level of revenue growth was enough to maintain a proactive fiscal policy. Fiscal expenditures grew by just 5.3% during Q3, lower than the previous quarter. However, Q4 expenditures surged to

27%. Expenditures continue to address quality of life issues, such as environmental protection, housing assistance, education, and health care. Fiscal income and spending are expected to moderately decline in the next six months. November’s PMI and PPI both indicated the coming of economic pattern change and this will negatively impact short-term revenue. Coupled with pressure on local governments to control debt and mitigate financial risks, expenditures are forecast to be subdued because more than 80% of China’s total fiscal expenditures are generated from local governments.

ROAD FREIGHT MARKET In 1H’13, both y/y freight growth and turnover fell to levels last seen in January 2012 and before that in December 2009, amid lackluster consumer demand. By the end of Q3, growth reached 10.4% (9.31 billion tons), while turnover was 11.5% (1.8 trillion ton kilometers). The road freight market maintained its status quo in Q4 with volume up 10.1% (9.67 billion tons) and volume up 11.9% (1.9 trillion ton kilometers). In the next two quarters, the economy is expected to grow slowly. As the macro economy ticks

upward, so goes demand for cargo transportation.The recent boom of online shopping is expected to bolster freight demand capacity as consumers take to the internet to buy. One caveat that will impact tractors is the central government’s policy restructuring for capacity- surplus industries that will dampen demand for transportation of commodities such as steel, coal, and cement. In addition, water and rail transportation costs are lower than those for road movement, and this will have a negative impact on the latter’s demand.

With local governments under less pressure, Bulk Commodities measured only by economic growth, emphasis on Production of construction-related commodities investment in high energy consumption industries saw an uptick in Q4’13, but power generation is expected to decline. This reduction, especially volume decreased. Although steel output in coal production, should be supported by the declined, ending the quarter at 10% compared to central government. Coupled with anticipated the near 16% growth rate seen at the beginning of strict restructuring of the steel, coal, and cement the period, iron ore and cement production rose. industries, efforts to shrink capacity are expected. While the former oscillated from 6% to 11% to In the next two quarters, production growth of bulk 10% during Q4, the latter finished December with commodities will slow. an 11% growth rate. Coal production was able to jump into positive growth territory during 2013’s final quarter, gaining 1.5% in October and 2.5% in Consumer Goods November. The last time coal production was Following approval of the central government’s above zero was January 2013. policy known as the “New Eight Provisions” Despite the fact that steel, coal, and cement are a consumption of high-end retail and hospitality major focus of national efforts to control capacity, products has decreased. This resulted in a drag to local governments have been increasing the hotel and catering industries in early 2013, investment in these areas, which supports slowing growth to between 8% and 9% throughout transportation demand of these commodities. 2013 compared to the double-digit escalations While good for industry, this increases the seen over at least the past five years. Growth in opportunity for more excess capacity situations in these segments will remain muted. While high- the future. Implementation of stronger regulations end service demand remained low, there was an to curtail the oversupply is expected. uptick in middle and low-range service provider

demand. Overall, retail growth, which had hovered in the 13% range for most of the year, achieved 14.3% growth in 2013’s final two months. Most of the uptick came from the online shopping craze. Significant acceleration was seen in the purchase of communication equipment, furniture, and building materials. In the next two quarters, consumer spending is expected to grow moderately, particularly when compared to 2013’s low base level. One note for the coming six months is CPI change. If CPI rises to May might have been exaggerated. Exports are significantly, consumption will be impacted and expected to experience accelerated growth the central government would be expected to though, as emerging economies recover. address the situation to prevent inflationary Additionally, foreign trade will continue to grow as pressures from spiraling out of control. China’s domestic demand accelerates and generates additional demand for imported goods and materials. To summarize the short term Foreign Trade Goods foreign trade outlook, export demand will show China’s foreign trade situation continued its stable growth over the next two quarters, while improvement in Q4 as domestic and international consumer demand will drive import trajectory. economies improved. Total foreign trade volume

in China increased by just over 7% y/y, with nearly 8% growth in exports and just below 7% Oil prices improvement on the import side of the ledger. For The international oil price fluctuated around $100 comparison, export growth in Q3 was 4%, while USD/barrel in Q2’13, but with changes in the imports grew nearly 9% during the same period. geopolitical climate USD/barrel prices As foreign trade increases the demand for freight experienced slightly more volatility in Q3, topping transportation will rise as well. at $110/barrel. As the risks subsided in mid- Moderate improvement is expected in China’s September, prices began to fall and by the end of foreign trade situation through 1H’14. In order to October they reached just over $96/barrel. crack down on false trade, in May 2013 China’s Overall, prices remained below $100/barrel State Administration of Foreign Exchange (SAFE) through the remainder of 2013 and into Q1’14. issued a Notice on Strengthening the In the year’s first quarter, the National Management of Foreign Exchange Inflows. During Development and Reform Commission (NDRC) the adjustment period as these regulations take adjusted its oil pricing system. The original 4% effect, it is important to remember that data prior adjustment limit, which was meant to stabilize oil

Q4’s results generated a subdued improvement of highway passenger transport demand. Passenger transport volume grew, but at a slower pace than the previous quarter. Volume was up 4.9% in Q4, compared to Q3’s 5.7% y/y gain. Passenger turnover was also lower than the previous quarter, arriving at 6.4% in Q4 versus the 6.9% y/y uptick in Q3. The coming two quarters should bring some stability, albeit muted, to this segment of the commercial vehicle industry. Cyclically, Q3 is the peak tourism season, as families travel before students return to school in the fall. Q4 travel diminished, as expected. Coupled with the fact that competition for passengers is growing between road, rail and air, slight declines are expected in passenger road transport. Of course, there are still areas of the country where the rail system is less developed, but the growth of this mode of transportation will have limited impact on overall passenger volume. The continuing rise of residents’ incomes and more positive confidence

prices versus the international market gyrations, was eliminated and the adjustment interval was shortened from 22 to 10 working days. The new policy implementation resulted in four price adjustments during Q4. Domestic diesel prices were reduced by 95 Yuan/metric ton on November 1st and reduced by 155 Yuan/ton on November 14th. The next two shifts were upward with prices rising by 155 Yuan/ton on November 29th and by 60 Yuan/ton on December 12th. (Note: 1 metric ton = 7.33 bbl) Crude oil supplies are expected to increase during the next six months and prices will likely be less volatile, but much hinges on global economic recovery and geopolitical forces.

PASSENGER TRANSPORT MARKET Urban and rural resident incomes continue to grow, but at a much slower rate than in 2012. Urban income grew near 7% throughout 2013, while rural residents saw their incomes increase just over 9%. Although lower than January’s 104.5 reading, consumer confidence rested near 100 in Q4, improved from its Q2-ending slump of 97.0.

measures will underpin growth in this segment. Corporate profit growth ranged from 13% to 19% during 2013, ending the year just above 16%. Profits of state-owned companies declined 4.1% y/y by the end of Q2, but skyrocketed nearly 16% on the positive side of the ledger in Q3. Q4 profits rose around 9%. Private enterprise growth ticked slightly upward to 14% in Q4, from the previous quarter’s 13.5%. The Business Climate Index stood at 121.5 at the end of Q3’13, almost unchanged from Q2’s 120.6 reading and down considerably from Q1’s 125.6 level. The measure slipped further in Q4, falling to 119.5. The Entrepreneur Confidence Index now stands at 117.1, where it landed in Q2 and is down from Q3’s 119.5 reading. Confidence hasn’t ranged this low since 2009. The slight downturn in business climate and confidence indices will likely reduce business travel. This segment of the road passenger market is expected to remain subdued in the next six months. Another factor impacting demand for passenger transport vehicles is the personal vehicle market. With increased desire for independent travel, private cars are being used more frequently. This INDUSTRY POLICIES will, to some extent, reduce long-term potential demand for transit buses and coaches. In Q4’13, One previous policy had residual impact on Q4 domestic demand for personal vehicles reached a commercial vehicle demand, while two others had three-year high, growing 30% y/y. This elevated minimal effect during the quarter, but are growth rate is a result of political and policy predicted to be more significant long-term. In stimuli, as well as a low previous year base addition, the third Plenary Session of the 18th CPC comparison. One policy that had a positive impact Central Committee was held in Q4, resulting in on private vehicle demand was the toll waiver policy reforms that are expected to create during the National Day Holiday. New warranty downward pressure on commercial vehicle policies also aided sales in October. Policies like demand short-term before providing long-term the purchase limit regulations in Tianjin suggest support. introduction of similar legislation elsewhere, and this will prompt consumers considering a vehicle purchase to do so before limits are implemented Limits & Measurement of Pollutive Emission in their area. Because muted economic growth is Released by Compression Ignition Vehicle expected in the next two quarters, the auto market Engine: On May 30, 2005, the Ministry of will be a bit sluggish. First quarter auto purchasing Environmental Protection (MOEP) and the general confidence may be buttressed by highway toll Administration of Quality Supervision, Inspection waivers during the Spring Festival Holiday. During and Quarantine of the People’s Republic of China 1H’14, private vehicle demand is expected to (AQSIQ) jointly launched this policy, which grow between 15% and 18%. scheduled the National Stage IV Emission Standard for Diesel to to be implemented on

January 1, 2011. However, at the end of 2010, the effective date was postponed for one year due to limits of production technology required for vehicle

modifications as well as issues with the availability

of quality (low sulfur) diesel fuel required by the personal property like leases, while the 6% new engines. At the end of 2011, the effective rate applies to other modern service date was again moved, this time to July 1, 2013, industries. because higher quality diesel was still not  The general tax calculation applies to available. industries of transportation, postal service, communication, service, cultural and sports- As part of a meeting on May 21, held by the China related, real estate sales, and intangible Combustion Engine Industrial Association to transferred assets. promote the implementation of the new emission  The simplified calculation applies to the standard, Tang Dagang, Director of Vehicle finance and insurance industries, as well as Emission Supervision Center of the MOEP said, consumer services. “Stage IV Standard was confirmed to take effect  VAT is payable on income with deductions on July 1, 2013.” Since the new standards involve allowed for payment and advanced asset changing technology and fuel quality, operational revenue. costs for heavy duty commercial vehicles will  Import and export services are charged VAT increase because of increased vehicle cost along in China, but are exempt abroad. with higher fuel pricing. In addition, customers are concerned about “backward compatibility” of the Transportation and logistics companies will pay new fuel to the existing engines approved under the VAT according to their profits, rather than their National III Emission Standards. revenue. In other words, the more tax paid on An executive session held a year ago by the State input items, such as a new vehicle, the less tax Council demanded that CNPC and Sinopec paid on final profit. When purchasing a new accelerate the pace of diesel fuel upgrade so that vehicle, the purchaser will receive a VAT invoice the the higher quality fuel would be available listing the sales tax. This amount will be deducted nationally by the end of 2014. With that goal in from the firm’s income/profit tax paid later. mind, expectations are for full implementation of Because most areas didn’t implement the VAT the Stage IV emissions regulations in early 2015. reform until August 1, 2011, only trucks purchased Because full implementation is not expected near- after 2011 can take advantage of this program. term, pre-buys of existing design commercial Those purchasing vehicles prior to 2011 must use vehicles continues and is expected to bolster the former depreciation method to calculate their demand of these units at least 1H’14. payable tax. As a result, companies with assets (vehicles) from 2011 or older will pay higher taxes,

which makes replacing those units desirable. Business Tax Changed to Value-added Tax Additionally, newer vehicles will cost less in oil (VAT): In January 2011, the State Council consumption and repair costs, as well as authorized a pilot tax reform program that would providing improved performance. Coupled with a change business taxes to a value-added tax. 17% tax reduction, many logistics firms believe Implementation is being handled by the Ministry of the time is right to make purchases and this will Finance and the State Bureau of Taxation and contribute positively to the growth of heavy duty began on January 1, 2012. It began with the truck demand. transportation industry in Shanghai and some modern service industries. By August 1, 2013, the Notice for Continuous Promotion and reform was implemented nationwide for these Application of New Energy Vehicles (NEVs): industries. Beginning on January 1, 2014, the rail On January 17, 2013, the National Development system and postal service were added to this and Reform Commission (NDRC), the Ministry of taxing system, meaning that all transportation Finance and two other ministries introduced a related businesses now pay tax via a VAT rather notice to accelerate the development of NEVs, than the traditional business tax rate. VAT reform energy conservation, emission reduction, and air includes: pollution abatement. Subsidies are being offered  Rates ranging from the standard 17% to a low for both the development as well as for the rate of 13% with newly-added rates of 6% and purchase of NEV vehicles. When used, the goal is 11%. The latter rate applies to tangible to make the purchase price of a NEV bus

equivalent to the purchase of a conventionally supporting industries for that battery technology. powered bus for the local government purchaser. Although the new subsidies apply only to BEVs To some degree this is an extension of previous and PHEVs, the central government will increase efforts. Following approval by the State Council, expenditure allowances for highly recommended the ministries began to promote the NEV subsidy NEVS. This is expected to boost the sales of large programs. Applications will be accepted through and medium buses through Q4’14. 2015 on the purchase of NEVs. Policy specifics include: Market Influences Resulting from the Third  Vehicles available for subsidies from the Plenary Session of the 18th CPC Central central government must be qualified Battery Committee: The Third Plenary Session convened Electric Vehicles (BVs), Plug-in Hybrid on November 9, 2013 in Beijing to consider Vehicles (PHEVs) and Fuel Cell Vehicles President Xi Jinping’s work report. On November (FCVs). Preference will be given to NEVs for 12th, The Decision of the CPC Central Committee use by government and public agencies, on Several Important Issues of Comprehensively including buses. Deepening Reform (The Decision) was reviewed.  Subsidies will reduce consumers’ costs for As a result of The Decisions’ analysis of the NEVs, which tend to have higher premiums. relationship between China’s economy and  Funds will be appropriated to NEV government a series of reforms are planned: manufacturers on a seasonal basis. OEMs  Reposition the relationship between the must apply for these subsidies at the end of market and the government: each season through the local financial and o The Decision states that allocation of technological departments where sales are resources should be more market driven, registered. The application will be submitted that the government’s direct involvement to the Ministry of Finance and the Ministry of in this process should be sharply reduced, Technology by the local finance and and that the government should serve as technology departments. Following an audit, an overseer or “night watchman.” the four ministries will appropriate the subsidy o Any price that can be impacted by the funds and determine the payment schedule. market will be set by the market in the  Subsidy payments are calculated as the future, rather than the government. difference between the comparable non-NEV o Except for some special areas, investors price and the higher NEV fee. A sample and enterprises will no longer need schedule follows: government review and approval, as long Thousand YUAN per vehicle as all regulations and laws are followed. The length L（meter） o A unified market entrance system will be Types 6≤L＜8 8≤L＜10 L≥10 implemented to reduce entry barriers and BVs 300 400 500 create a more level playing field. o Research and development efforts will be PHEVs(REEVs NA 250 guided by the market. included) o The objective of this restructuring is to allow the market to drive economic Additionally, the subsidies for super-capacitor and activities without as much intervention lithium titanate quick charge BVs are from the government as has been needed 150,000yuan. The subsidy for BEV specialty in the past. vehicles, used mainly in postal, logistic and o The economic role of the government will sanitation vocations, is 2000yuan per KWH, which be to ease fluctuations, prevent economic comes to less than the 150,000yuan level for each risks, make rules governing the market, vehicle. Super-capacitor technology allows for strengthen market oversight, and provide better performance and faster recharges when public services. combined with conventional batteries in buses.  Fiscal and financial reforms including: With China being the world’s largest producer of o The Decision states that the central and lithium titanate, those subsidies also help support local governments’ financial and that domestic industry as well as the many administrative authority are currently

unbalanced. To increase fiscal revenue, production, a “red line” should be local governments pay great attention to established to secure both quantity and land, raising land prices, creating high quality of foods and grains for the future. housing prices, and authorizing land  Reform State-owned Enterprises (SOEs): grabs. Local governments have also o The Decision illuminated long-standing financed investment and other efforts problems of the SOE system, including using credit, creating risky debt situations. lack of market innovation and o According to The Decision, the central entrepreneurial spirit, low operator government’s administrative authority on initiative, too much short-term government expenditures for public service should be intervention, and too little long-term increased. government supervision. o The local tax system needs to be adjusted o Because SOEs are state owned, they to insure sufficient local tax revenue. have a close relationship with the o Reform specifics include improving government and banks, which has annual budget control, establishing multi- created both an innate advantage as well year budgeting, creating budget as an entry barrier for private enterprises. transparency, and cancellinig priority Therefore, reform must be market spending linked to GDP. oriented, and a separation between  Reform land structures now divided into government and enterprises must be either urban or rural: made. o Rural land cannot be traded and the only o Separation measures need to include a way it can be rezoned for urban uses is division between supervision and capital through government-backed land management, integrating SOEs in the acquisition. Farmers have no share in market economy by developing a value added to the land and when farmers diversified ownership economy, managing migrate to cities, the land sits idle. SOE classified areas, and encouraging o More land is needed to increase urban non-public enterprises to participate in construction, and land for these uses is in SOE reform. short supply. The Third Plenary Session of the 18th CPC o The Decision states that reform should Central Committee wants the market to decide the include a construction-land market in level and direction of resource allocation and which farmers would receive believes the level of government intervention compensation. should be reduced. The Committee promotes o During a Central Conference on Rural resource conservation, strengthening system Work in December and a Nationwide standards and government supervision, improving Urbanization Work Conference held in the quality of economic development rather than December, both groups concluded that the speed of economic growth, and increasing rural land reform is necessary, that rural efficiencies. Overall, these reforms are expected urbanization, also termed “townization”, to negatively impact commercial vehicle demand. should be a priority. To ensure that does not severely impact long-term food

Q4’13 growth in the three commercial vehicle HEAVY DUTY TRUCKS (Dump & Straight) sectors yielded varied patterns. Heavy duty truck Domestic sales of Chinese heavy duty trucks sales rose dramatically, ending the quarter with (excluding tractors) switched directions q/q in Q4, 68% y/y growth, while medium truck sales jumping to 112,000 units from Q3’s 88,000 units. contracted, down -36.7% y/y at the end of This is a 43% y/y increase and the third quarter December. Large and medium bus sales closed growth has exceeded 30%. Exports fell again, 2013 on a positive note, after oscillating from dropping -9.5% y/y to 14,400 units. The decline -6.7% y/y growth in October to 17.3% in primarily continues to be a slowdown of emerging November and finishing December at 5.9%. country economies, political instability in other Heavy truck and tractor growth was spurred by countries, and appreciation of the RMB. 2012’s weak volume, which created “easy comps.” Additionally, the impact of the Nation IV The country’s stable economy contributed to the Standard, general replacement demand and a growth of heavy truck sales in Q4, buttressed by steady macro economy also helped support the sales resulting from the National IV Emission improvement, with the heavy duty equipment Standard. Incomplete chassis growth improved, faring particularly well. Medium duty vehicles saw more than 39% y/y, while freight hauling truck declines for the second consecutive quarter when demand rose nearly 42% y/y in Q4. Construction- compared to elevated 2012 levels caused by related vehicle growth dropped in 2013’s third policies encouraging sales of these vehicles. quarter, down 6.7% y/y, before turning positive in Q4, with 25% growth.

HEAVY DUTY TRACTORS Following an eight-month sales slump, Q2 and Q3 tractor demand saw dramatic y/y jumps ahead of the scheduled July 1st National IV Standard emission implementation. It is also noteworthy that these comparisons were against a very weak previous year base in 2012. The significant sector demand growth continued in Q4, up 72% to 74,400 units. Year-over-year domestic sales comparisons in Q4 were: 2012 2013 October -32% 50% November -21% 80% December 7% 88%

In addition to the lower 2012 comparison base, MEDIUM DUTY TRUCKS factors impacting Q4’13 domestic tractor sales Q1’13 medium duty growth was just 7.5% y/y, with included: 67,000 units sold. In Q2, domestic medium duty  Replacement demand – Tractor demand truck sales reached 80,000 units, up 31.5% y/y between 2008 and 2010 was high and and 24% higher than Q1. While still positive year replacement of those units began in Q3’13 over year at 3.6%, Q3 domestic sales of medium and continued in Q4. duty trucks was nearly 28% lower than Q2’13, at 56,000 units. The slowdown resulted from  National IV Emissions Standard – Despite the comparison to solid sales in Q3’12. Also a factor fact that these regulations took effect on July st was a shift to heavy duty trucks during the 1 , enforcement remains uneven. The central quarter. Although this was good for that part of the government has issued no enforcement notice industry, it was a drag for the medium duty truck and has instead abdicated this to local segment. For these same two reasons, medium governments. Because local authorities are duty truck demand declined on a year-over-year free to begin enforcement on their own basis for a second consecutive quarter in Q4, schedule, tractor demand continues to release down -29.2% to 58,300 units. in the form of local pre-buys in advance of local IV Emissions Standards implementation. Evaluating the market by body types, the The implemenation is occurring more in the incomplete truck and transport segments both major metro areas, and the rate of saw negative growth in Q4, the former falling to - implemenation is being slowed by the 16% with the latter to -30%. Specialty vehicles availabiltity of the appropriate low-sulfur fuel. dropped considerably in Q1, down 29% y/y.

Although still on the negative side of the ledger, the rate of decline moderated for these trucks in Q2 and Q3, with declines of 11% and 12%, respectively. This segment’s demand plummeted in Q4, down 40% y/y. The specialty market segment has now posted declines for eight consecutive quarters.

LARGE AND MEDIUM BUSES Q4’13 domestic sales of large and medium buses rose 6% y/y to 36,100 units. This compared to a sharp fall in Q3 when sales tumbled 28% to just 21,000 units. Export volumes also saw an uptick by nearly 7% to 17,500 units. As with its colleague truck categories, low base-year comparisons explain much of the bus market growth. Considerations impacting the large and medium bus markets in 2013 included:  The 18th CPC National Congress was convened, resulting in a temporary suspension of new passenger bus lines by government authorities.  Negative ramifications lingered from the “Safety and Technology Conditions for Motor Vehicles” regulations that were implemented on September 1, 2012. The impact of these regulations will continue to be seen through most of 2014.  A positive factor for this market is that safe, efficient transportation of students is considered a very important component of China’s societal improvements. The impact will, however, be relatively low in the short-to- medium term.  Policies encouraging new energy use and emission reduction increased the demand for large and medium LNG, electric, and other alternatively fueled city buses. Alternative fueled buses accounted for 40% of the total large bus sales for most of 2013, suggesting that energy saving and new energy formats are propelling the market. The “clean” operation of these types of buses makes them critical for nearly 5% y/y. Demand for medium duty buses usage in public transportation in urban areas oscillated through 2013, ranging from February’s where air pollution continues to be a major quality 25.5% y/y drop to June’s 28.1% y/y growth. of life issue. Medium duty demand improved in Q4 from the previous quarter’s -10% fall to a rise of

SHORT-TERM OUTLOOK China Real GDP Y/Y Percent Change  Heavy and medium truck (including tractor) Q1 '05 - Q2 '14F Percent markets will continue to grow in Q1’14, 16

although modestly, as a result of replacement 14 demand; an “easy comp” to the same quarter 12 in 2013 also contributes. Ongoing demand will be enhanced with pull-forward/pre-buy 10 purchases due to concerns over the 8 implementation of National IV Emissions 6 Standards. A y/y decrease is expected in Q2 4

amid economic softness and a stronger 2013 2

comparison base. Consumption, aided by 0 1234123412341234123412341234123412341234 domestic delivery needs generated by 05 06 07 08 09 10 11 12 13 14

growing e-commerce impact, is expected to Source: People's Bank of China/National Bureau of Statistics ACT Research Co., LLC: Copyright 2014 rise steadily. However, the e-commerce economic growth will inevitably proceed at a growth will not be enough to offset the slower pace in the next five years when compared downward pressure of investment in real with the past five years. We estimate that China’s estate, manufacturing and infrastructure. economic growth in the next five years will Additionally, import and export growth will be average 7.5% annually. Balancing income growth weak in Q2. between urban and rural areas will continue to be  Declining growth is expected in the large and important; improving rural incomes will allow medium bus segments in Q1’14, with growth further “townization”, although sufficient rural forecast to enter the negative side of the population levels will need to be maintained to ledger during Q2. The downturn will result provide needed food and materials for the overall from higher 2013 sales comparisons. Most of population and economy. the growth anticipated will come from Key factors influencing long-term development: government purchases, including public transportation and new energy vehicles. Sales  INTERNATIONAL: Despite positive signals, of coaches will be negatively impacted by developed economies lack the impetus high-speed rail and the popularity and impact needed for dramatic change; therefore, of private passenger vehicles. Sales have international recovery remains progressive, been declining for the past two years, and a but slow. Emerging economies are faced with rebound is expected, but it is questionable lower growth opportunities. Additionally, there whether the market will ever return to historic is a concern that accommodative fiscal levels. policies currently in place by leading governments may not continue.

 DOMESTIC: Although economic growth MACROECONOMIC ANALYSIS TO 2018 means old problems are solved, it also means China’s economy has undergone profound that new challenges appear. Disparity still changes and made great strides in the past thirty exists between urban and rural residents years. With GDP per capita now at $6,000, China Forecast of Population Urbanization has become the world’s second-largest economy 900 80% Urban Population (Millions) L Urbanization (%) R and moved into the rank of middle-income 800 75% countries. With this rapid economic development 700 70% have come national challenges, including an 600 65% 500 60% expanding urban/rural income gap. The 400 55% Millions economy’s rapid development has also caused 300 50% Percentage excessive and poorly regulated mining, power 200 45% generation, and mid-channel processing 100 40% 0 35% industries, such as smelting, which results in growing environmental damage. China’s Source: China State Information Center ACT Research Co., LLC Copyright 2014

which has a regional impact on development. environmental concerns. Also, the shift Manufacturing overcapacity now exists, and toward a more domestic economy and much of that is inefficient and environmentally away from strong export driven growth negative. Those factors combine to make it redirects investment. There are difficult for business to increase profit and corresponding implications for growth. Further compounding these difficulties transportation of goods domestically as are growing environmental and social issues. well as improvements in logistic Without legislation it would be difficult to keep productivity. Structural reforms will also internal resources such as fresh waters clean. impact investment and capital growth. Additionally, policies are needed to address o Productivity: In the future, production outsourced dependencies such as the need efficiency, innovation, and improved for foreign oil. Sensing the need to create management skills are all factors that will balance between economic growth and be required to support economic growth. environmental destruction, the State Council China has implemented many significant created a plan of action for the prevention and economic reforms over the past three control of atmospheric pollution. Although this decades. These include rural reforms, a will mandate a system of responsibility for shift from a planned economy to a more environmental issues, it will simultaneously market-driven economy, open trade and shift investment potential from production investment reforms in state-owned output to technological innovation. enterprises and banks, and urban housing  PRODUCTION INPUTS: When considering reforms. After all the significant gains of long-term economic growth, production- the past, future reforms are expected to related factors must be taken into account. be more complex and include price Those include the availability of labor, capital implications involving land, labor, and and total productivity. Each is expected to capital. decline by varying degrees in the next five China’s economy has seen a tremendous amount years. of growth and the country continues to develop. o Labor: The labor supply will become However, there are still many strategic increasingly tight, as workers’ wages rise opportunities to be implemented as development and the workforce ages. The continuation progresses. A recent report to the 18th CPC toward higher urban population will allow National Congress noted that there is “stress on proportionately higher economic growth adhering to the thinking that only development over the coming years, despite the counts.” Therefore, political leaders will have to projected lower growth rate of the active “ensure that development is based on improved labor force. Urbanization, which is more of quality and performance” and “ensure that a long-distance shift in population, will be economic entities under all forms of ownership joined by “townization”, a second level of have equal access to factors of production in population concentration that is less accordance with the law.” The report also stated driven by long-distance population that there is still a need to “make great efforts to movement. This will also help ease the promote urbanization.” The Third Plenary Session issues related to continually increasing of the 18th Central Committee of the CPC stressed population density in large urban areas that economic development is still the priority in density. policy making. o Capital Investment: Capital investments China’s economic development remains positive have been stunted as business leaders overall, but varies somewhat by region, industry, lack confidence and have adopted a “wait sector, and enterprise. and see” attitude. Capacity, efficiency and  REGION: Economic transformations in the location are major factors to be Eastern region came early and quickly, considered, with location being a major particularly in the service and manufacturing consideration regarding urban segments. Activity in the Central and Western

regions is growing, albeit at a slower pace. reform will become critical to solving the growing Resident incomes in those two areas remain “middle income” trap and these reforms will subpar, but there are strong efforts toward involve expanding the focus of “development” to improving their regional standing. include improvement in quality and efficiencies, as well as actively promoting urbanization and  INDUSTRY: While growth in the service marketability efforts. industry has gained momentum, secondary industries, such as manufacturing, have experienced a slowdown. Expectations are FUTURE DEMAND FORECASTS that the service industry will continue to grow as the country moves toward more of a Medium and Heavy Duty Trucks consumption based model, and growth of new The need for freight vehicles will rise sectors of opportunity such as e-commerce corresponding to upticks in consumption and will add to that progress. Labor intensive foreign trade, but only after existing trucks are industries will contract long-term, as will heavy engaged. Changes in infrastructure investment chemical industries, especially those with high and environmental policy will impact commercial pollution generation and low profit margins. vehicle demand, as well. Over the longer term, Investment in power generation will support new unit sales will be determined by freight increased power demand, but will also be volume need, replacement demand, and directed toward more environmentally friendly efficiency-driven market change. power generation. Development in small to medium-sized cities will accelerate longer- Short-term, freight demand is expected to be term. The impact of e-commerce will be seen moderate, with minimal support from foreign in both retail channels as well as the required Heavy-Duty Truck Sales delivery services Units & Y/Y % Change Q1 '07 - Q4 '14 Units (000s) Y/Y %  SECTOR: New technology-related 250 250 Total businesses are growing faster than traditional Y/Y % Chg 200 200 sectors, while consumption is outperforming Export Domestic investment-related efforts. Emerging sectors, 150 150 such as communication and medical technologies, are exhibiting dramatic growth. 100 100

More traditional businesses, such as 50 50 pharmaceutical, food, automobile, and textiles, while stable, are not significant 0 0

contributors to accelerated economic growth. -50 -50 12341234123412341234123412341234 Improvement in non-traditional sectors will 07 08 09 10 11 12 13 14

parallel the rise in incomes. Source: SIC ACT Research Co., LLC: Copyright 2014  ENTERPRISE: Small and medium-sized Heavy-Duty Truck Sales businesses are the major factors powering job Units & Y/Y % Change 2009 - 2018 F creation, as well as increased tax revenue. In Units (000s) Y/Y % Chg 1,000 100 general, they are more innovative and provide Y/Y % Chg Units the greatest opportunity for enhanced 750 75 economic development. As they continue to expand, the central government is expected to 500 50

modify policies to reduce or remove barriers 250 25 that might limit development for these enterprises. 0 0

As long as individuals remain dissatisfied with the -250 -25 economic and social systems, the central -500 -50 government will be motivated to pursue reforms 2009 2010 2011 2012 2013 2014 F 2015 F 2016 F 2017 F 2018 F that address Chinese residents’ concerns. Policy Source: SIC ACT Research Co., LLC: Copyright 2014

trade, bulk commodities, and domestic airports, but at a more moderate rate consumption. Year-over-year, growth of the heavy during the next five years than the and medium duty truck markets in the next two previous five. Moreover, urbanization will quarters will slow, and post some declines on the continue to support real estate demand. way to a minor y/y drop in 2014. These markets o Bulk Commodities: Economic growth will return to a y/y growth path in 2015. will put continued pressure on bulk  Road freight volume is composed of commodity consumption. Growth in construction materials (cement, sand, stone, materials such as coal, iron, and cement etc.), bulk commodities (coal, iron, and steel), will continue, but at a slower pace. Again, and consumer goods. China’s economy will it bears mentioning that coal hauling is a grow steadily over the upcoming years, but critical driver of regional truck demand. that improvement will progress at a slower Many of China’s industries are high- rate than in the recent past. energy consuming businesses, and ongoing environmental and energy o Construction is driven by infrastructure efficiency initiatives will constrict their and real estate investment. China’s growth. Economic restructuring should urbanization and townization trends will also improve the rate of bulk commodity continue but at a slower pace, with heavy consumption per unit of GDP. According industrialization entering its later growth to the “12th 5 Year Plan”: phase. As a result, infrastructure investment will continue to grow, with . Coal output is projected to grow, but emphasis on railways, roads, and at a slower rate than the overall economy. The output of raw coal in Heavy-Duty Tractor Sales Total Heavy-Duty Sales Units & Y/Y % Change Units & Y/Y % Change Q1 '07 - Q4 '14 Q1 '07 - Q4 '14 Units (000s) Y/Y % Units (000s) Y/Y % 150 600 350 350 Total Y/Y % Chg 125 Y/Y % Chg 500 300 Heavy Tractor 300 Export Heavy Truck Domestic 250 250 100 400

200 200 75 300 150 150 50 200 100 100 25 100 50 50

0 0 0 0

-25 -100 -50 -50 12341234123412341234123412341234 12341234123412341234123412341234 07 08 09 10 11 12 13 14 07 08 09 10 11 12 13 14

Heavy-Duty Tractor Sales Total Heavy-Duty Sales Units & Y/Y % Change Units & Y/Y % Change 2009 - 2018 F 2009 - 2018 F Units (000s) Y/Y % Chg Units (000s) 500 250 1,500 150 Y/Y % Chg Y/Y % Chg Units 1,250 Heavy Tractor 125 400 200 Heavy Truck 1,000 100

300 150 750 75

200 100 500 50

250 25 100 50

0 0 0 0 -250 -25

-100 -50 -500 -50 2009 2010 2011 2012 2013 2014 F 2015 F 2016 F 2017 F 2018 F 2009 2010 2011 2012 2013 2014 F 2015 F 2016 F 2017 F 2018 F

2013 was 3.68 billion tons, a 0.8% y/y consumer confidence, as well as new increase. Future coal production will policies to increase consumer be strictly controlled in spending. correspondence to energy-saving . During the 18th National People’s policies, air pollution control, and Congress (NPC), the central adjustments to China’s energy government proposed for the first time structure. that per capita income of urban and . While China’s economic growth will rural residents should double by generate increased demand for steel, 2020, which is greatly conducive to the rate of growth will be at a more consumption. modest pace than that seen recently. . Total retail sales of consumer goods The output of crude steel in 2013 was were 23.781 trillion Yuan in 2013, a 780 million tons, a 7.6% y/y increase. 13.1% y/y increase. This was 11.5% It is projected that 2.58 billion tons of y/y, adjusting for price increases. steel will be consumed by 2015. Based on comparisons to . As income increases and consumer industrialization in the U.S. and confidence builds, retail sales of Japan, China’s demand for steel still consumer goods will steadily rise. has room to grow and will shift from Correspondingly, transport demand of export driven usage to demand more consumer goods will also rise. driven by domestic requirements.  Investment in railway construction is expected China is now in its mid- to late-stage to increase, especially to support the transport industrialization and its per capita of coal. This shift will spur reduction of coal crude steel consumption was 573 kg transport by road. Several large capacity coal in 2013. This compares to the crude railway lines are currently in the planning steel peaks of 710 kg in the U.S. and stages. These include lines serving Central 1089 kg in Japan at the height of and Southern Shanxi: the Zhunger-Caofeidian those countries’ industrialization and the Alashan-Qinhuangdao Railways. The periods. share of freight moved via highways will o Consumption: Macroeconomic policies gradually decline, and with it tractor sales, as will gradually shift emphasis toward goods movement on rail is cheaper, more “safeguarding investment” and efficient, and energy saving. “expanding domestic consumption.”  Improvements in vehicle quality, road . The 12th 5-Year Plan calls for availability, and logistics efficiency will increasing income, business, and precipitate an increase in the effective and

Medium-Duty Truck Sales Medium-Duty Truck Sales Units & Y/Y % Change Units & Y/Y % Change Q1 '07 - Q4 '14 2009 - 2018 F Units (000s) Y/Y % Units (000s) Y/Y % Chg 100 125 350 35 Total Y/Y % Chg 300 30 80 Y/Y % Chg 100 Units Export 250 25 Domestic 60 75 200 20 40 50 150 15

20 25 100 10

0 0 50 5

0 0 -20 -25

-50 -5 -40 -50 12341234123412341234123412341234 -100 -10 07 08 09 10 11 12 13 14 2009 2010 2011 2012 2013 2014 F 2015 F 2016 F 2017 F 2018 F

appropriate carrying capacity of commercial o In addition, according to Air Pollution vehicles. This will impact the transport Control in Key Areas during the 12th Five- capacity of each vehicle, but will reduce the Year Plan, China will basically eliminate number of vehicles needed to move the same yellow label cars registered before 2005. amount of freight. These are high emission vehicles that entered the market prior to the o Investment in roads will continue, implementation of pollution control although at a slower pace than recent standards. While a small percentage of years. The Ministry of Transport has total vehicles in operation, these vehicles published its National Highway Network are estimated to be responsible for over Plan for 2013-2030. This is China’s first three quarters of unfavorable emissions. national mid-to-long term highway The replacement of these vehicles will network plan. It calls for China’s highway undoubtedly have a significant impact on network to reach 5.8 million km, with both replacement-driven automobile national highways at 7% (401,000 km), demand as well as environmental quality. provincial highways at 9%, and rural roads at 84%. o Vehicle modifications will include higher Medium and Large Bus Forecast horsepower and better components, This market is separated into the urban transit, resulting in longer-lasting trucks. road passenger (tourism and passenger o Cost pressures from oil prices and labor transport), and school bus segments. The next rates will emphasize the importance of two quarters will see moderation in business and increased logistical efficiency. Lower leisure travel. Growth is expected to be largest for transportation cost per unit will also help the school bus and LNG transit bus markets. The boost company profitability. The logistics renewal of government subsidies supporting industry will become more competitive, alternate energy buses in 2014 will buttress the professional, efficient, and savvy. alternate fuel share of the market in the future. Some q/q contraction from 2013’s high market  Regarding vehicle scrap and replacement, the proportion is likely in early 2014 before this Ministry of Commerce solicited opinions on segment returns to positive performance later in the “Draft of Automotive Compulsory the year. Scrapping Standard” during Q1’13. The proposal set limits on the maximum age of operation for commercial vehicles. While Urban Transit Market: Although increasing having minimal short-term impact, this urbanization and national environmental policies standard would help support, and potentially will boost demand for municipal buses, the public smooth, long-term commercial demand. When bus market will grow through 2017 at a implemented, it would also result in a gradual decreasing rate, particularly if the increase in upgrading in the efficiency and quality of private vehicles and larger size public buses are commercial vehicles in operation. factored into the equation. While urban railway o Replacement demand is determined construction will increase, a market for public bus primarily by historical sales and retirement transportation still exists long-term. The largest policies. Demand is expected to increase growth of this segment is expected in smaller in the next five years. cities where the current number of buses is limited. These are also cities that fall below o Rules for Mandatory Motor Vehicle guidelines for urban rail construction. Retirement Standards were published by the Ministry of Commerce in December of  China’s urban population was 730 million in 2012 and became effective in May 2013. 2013, an urbanization rate of nearly 54%. At This stipulates a retirement age and this point, the rate of growth in urbanization is mileage for every type of commercial expected to slow dramatically, rising only vehicle. around 1% annually. China’s urban population

Large & Medium Bus Sales Units & Y/Y % Change number of buses per 10,000 people. It is Q1 '07 - Q4 '14 expected that policy emanating from the 13th Units (000s) Y/Y % 60 150 Five Year Plan will increase the bus-person Total 50 Y/Y % Chg 125 ratio to an even greater number, furthering Export demand for transit vehicles. Domestic 40 100 Road Passenger Bus Market: The continual 30 75 impact of income distribution reform will generate 20 50 steady personal income growth. One of the

10 25 transportation sector benefits will be increased residential travel. In 2012, high passenger 0 0 transportation demand accounted for nearly 94% -10 -25 of the overall market. However, this is expected to 12341234123412341234123412341234 07 08 09 10 11 12 13 14 slow as private vehicle travel becomes more Source: SIC ACT Research Co., LLC: Copyright 2014 popular. The improved availability of rail Large & Medium Bus Sales transportation in remote areas of the country, Units & Y/Y % Change which has historically been a source of bus 2009 - 2018 F Units (000s) Y/Y % Chg transportation, will result in slower long-term bus 250 100 Y/Y % Chg transport demand. Units 200 80  The “12th 5 Year Plan” targets personal income growth to exceed GDP growth rate. 150 60 o The first challenge is to increase the 100 40 share of resident income in the total

50 20 national income distribution. Secondly, measures including taxation 0 0 o and transfer will be used to adjust income -50 -20 distribution between different sectors and 2009 2010 2011 2012 2013 2014 F 2015 F 2016 F 2017 F 2018 F regions, as well as between urban and Source: SIC ACT Research Co., LLC: Copyright 2014 is expected to reach 810 million by 2018. rural areas, with an end-goal of gradually Despite this slowing in urbanization growth, improving the incomes of low and middle this is a societal factor that will continue to income citizens in all geographic areas. drive a growing demand for public transit. o These initiatives will result in a steady income rise over the coming years.  China’s guidelines for rail transportation construction allow subway (underground Higher incomes will increase consumption railway) construction in cities with a GDP over expenditures, including travel, with a RMB100 billion, fiscal revenue over RMB10 corresponding increase for road billion, and a population above 3 million passenger buses as rural incomes are people. Light rail lines are permitted in areas projected to grow faster in an attempt to with GDP over RMB60 billion, fiscal revenue gain parity with urban areas. over RMB6 billion, and population above 1.5  The 18th NPC proposed a project to double million. Given the continual urban population income. By 2020 both GDP and per capita shift, future rail construction and market income are expected to meet this goal. penetration will grow rapidly, replacing some need for public transit buses.  The existing railway network serves only selected areas, but road networks have the  Amid growing national priority to curb traffic flexibility to connect the largest cities and the congestion and pollution, the central smallest villages. This flexibility means roads government created an action plan to prevent serve a greater portion of the population than and control of atmospheric pollution, which railways, confirming growth in the passenger asks governments at all levels to increase the bus market.

 Railway construction will continue at a fast operational rules, and proposed government- pace, particularly in the high-speed passenger sourced expenditure support also were segment, as China expands its “bullet train” addressed. The regulations prioritize rural investment. The railway network is projected school bus procurement in the short-term. to reach 128,000 km by 2020; high-speed  Despite this, current policies mandate that passenger railways will be 16,000 km of that “funding of school buses should be shared by system. the central government and the local  Railway passenger transportation is a long- government.” They add that this will be term competitor to mid and long distance bus “formulated by financial departments of the transportation. The continued growth of rail State Council.” However, these formulas have passenger capacity will support increased not been released and the relevant tax residential travel efficiency. China’s relatively incentives have not yet been implemented. low population density will help support new While these regulations have not had bus demand for long-distance travel in areas significant impact in the short term, those not served by the rail system. obstacles are not expected to significantly thwart long-term growth of the school bus

market; demand is inevitable with 182 million School Bus Market: A series of highly publicized high school and primary school students in school bus accidents sparked significant attention China. For perspective, if only 10% of the to this market in 2012. Despite the relatively small students are transported via school bus, that size of the school bus market, it will grow under would require at least 300,000 buses. the support of state policies. With standards of safety and living on the rise,  On April 12, 2012, the State Council passed central and local governments will have to provide the Regulation on Chinese School Bus Safety subsidies to address issues of education and Management. These rules address both local welfare. and national responsibilities for school transit administration. Safety technology standards,

Grand Total Sales Grand Total Sales Units & Y/Y % Change Units & Y/Y % Change 2009 - 2018 F Q1 '07 - Q4 '14 Units (000s) Y/Y % Chg Units (000s) Y/Y % Chg 2,500 50 500 250 Heavy Truck Heavy Tractor Medium Truck Large & Medium Bus Y/Y % Chg Heavy Truck Heavy Tractor Medium Truck Large & Medium Bus Y/Y % Chg 2,000 40 400 200

1,500 30 300 150 1,000 20

200 100 500 10

100 50 0 0

0 0 -500 -10

-100 -50 -1,000 -20 12341234123412341234123412341234 2009 2010 2011 2012 2013 2014 F 2015 F 2016 F 2017 F 2018 F 07 08 09 10 11 12 13 14

SHORT TERM FORECAST (including export)

2011 2012 2013 2014 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 2013 Q1(F) Q2(F) Q3(F) Q4(F) 2014(F) Heavy Trucks 214,645 192,309 107,563 110,179 624,696 139,099 124,524 85,596 93,998 443,217 115,581 164,764 103,850 126,391 510,586 122,000 163,000 106,800 112,900 504,700 Heavy Tractors 76,003 60,874 60,965 59,001 256,843 64,150 43,685 34,362 48,611 190,808 53,176 69,149 60,627 80,452 263,404 60,000 65,000 65,000 65,500 255,500 Total Heavy-Duty 290,648 253,183 168,528 169,180 881,539 203,249 168,209 119,958 142,609 634,025 168,757 233,913 164,477 206,843 773,990 182,000 228,000 171,800 178,400 760,200 y/y % growth 8.7% -20.1% -17.5% -25.3% -13.1% -30.1% -33.6% -28.8% -15.7% -28.1% -17.0% 39.1% 37.1% 45.0% 22.1% 7.8% -2.5% 4.5% -13.8% -1.8% q/q % growth 28.3% -12.9% -33.4% 0.4% 20.1% -17.2% -28.7% 18.9% 18.3% 38.6% -29.7% 25.8% -12.0% 25.3% -24.6% 3.8%

Medium-Duty Trucks 70,124 81,966 61,218 77,307 290,615 70,935 69,017 60,411 88,297 288,660 73,212 86,128 62,062 65,011 286,413 73,000 87,000 59,000 62,000 281,000 y/y % growth -2.4% 4.5% 2.6% 23.3% 6.6% 1.2% -15.8% -1.3% 14.2% -0.7% 3.2% 24.8% 2.7% -26.4% -0.8% -0.3% 1.0% -4.9% -4.6% -1.9% q/q % growth 11.8% 16.9% -25.3% 26.3% -8.2% -2.7% -12.5% 46.2% -17.1% 17.6% -27.9% 4.8% 12.3% 19.2% -32.2% 5.1%

Large & Medium Buses 31,354 36,436 45,409 50,252 163,451 32,830 41,168 45,208 50,362 169,568 32,353 45,556 39,643 53,569 171,121 33,000 42,000 50,000 54,000 179,000 y/y % growth 1.8% -5.1% 8.3% 5.6% 3.0% 4.7% 13.0% -0.4% 0.2% 3.7% -1.5% 10.7% -12.3% 6.4% 0.9% 2.0% -7.8% 26.1% 0.8% 4.6% q/q % growth -34.1% 16.2% 24.6% 10.7% -34.7% 25.4% 9.8% 11.4% -35.8% 40.8% -13.0% 35.1% -38.4% 27.3% 19.0% 8.0%

Grand Total 392,126 371,585 275,155 296,739 1,335,605 307,014 278,394 225,577 281,268 1,092,253 274,322 365,597 266,182 325,423 1,231,524 288,000 357,000 280,800 294,400 1,220,200 y/y % growth 5.9% -14.3% -10.0% -11.9% -7.7% -21.7% -25.1% -18.0% -5.2% -18.2% -10.6% 31.3% 18.0% 15.7% 12.8% 5.0% -2.4% 5.5% -9.5% -0.9% q/q % growth 16.4% -5.2% -26.0% 7.8% 3.5% -9.3% -19.0% 24.7% -2.5% 33.3% -27.2% 22.3% -11.5% 24.0% -21.3% 4.8%

LONG TERM FORECAST (including export)

2009 2010 2011 2012 2013(F) 2014(F) 2015(F) 2016(F) 2017(F) 2018(F) Heavy Trucks 423,363 660,510 624,696 443,217 510,586 504,700 532,500 574,500 609,000 628,750 y/y % growth 22.0% 56.0% -5.4% -29.1% 15.2% -1.2% 5.5% 7.9% 6.0% 3.2% Heavy Tractors 211,241 354,459 256,843 190,808 263,404 255,500 272,800 296,200 316,750 334,000 y/y % growth 8.7% 67.8% -27.5% -25.7% 38.0% -3.0% 6.8% 8.6% 6.9% 5.4% Total Heavy-Duty 634,604 1,014,969 881,539 634,025 773,990 760,200 805,300 870,700 925,750 962,750 y/y % growth 17.2% 59.9% -13.1% -28.1% 22.1% -1.8% 5.9% 8.1% 6.3% 4.0%

Medium-Duty Trucks 253,174 272,717 290,615 288,660 286,413 281,000 285,750 291,250 297,000 301,750 y/y % growth 19.2% 7.7% 6.6% -0.7% -0.8% -1.9% 1.7% 1.9% 2.0% 1.6%

Large & Medium Buses 129,763 158,722 163,451 169,568 171,121 179,000 186,400 195,000 202,000 207,000 y/y % growth 9.2% 22.3% 3.0% 3.7% 0.9% 4.6% 4.1% 4.6% 3.6% 2.5%

Grand Total 1,017,541 1,446,408 1,335,605 1,092,253 1,231,524 1,220,200 1,277,450 1,356,950 1,424,750 1,471,500 y/y % growth 16.6% 42.1% -7.7% -18.2% 12.8% -0.9% 4.7% 6.2% 5.0% 3.3%

MARKET COMPETITION

HEAVY TRUCK & TRACTOR OEMs  Pre-buy sales continued ahead of the China IV Emission Standards implementation, which STRAIGHT TRUCKS (excluding tractors): are happening at the discretion of local Dongfeng Group, CNHTC, and Shaanxi governments rather than as a country-wide Automobile Group maintained their positions as enforcement by the central government. the three largest heavy truck manufacturers in  The replacement of business taxes with a Q4’13. Dongfeng’s market share rose from 22% to VAT (value added tax) system encouraged 25% q/q, while CNHTC’s fell slightly from 20% to logistics companies to replace older 19% over the same period. Shaanxi Auto’s market equipment prior to the new tax share jumped to 14% from the previous period’s implementation. 13%. Beiqi Foton Motor, at 9%, and FAW Group, 7%, retained their fourth and fifth market share  Dongfeng and Shaanxi Auto’s efforts in Q4’13 positions during the quarter, insuring a consistent focused on production of incomplete chassis, 78% of the market sales for the top five which drove overall market sales. producers. Sales contracted for six of the top 10  SAIC’s sales were concentrated in the manufacturers, with Dongfeng, Shaanxi and FAW specialty vehicle sector. the only three to show significant growth. Tri-Ring Group’s share was virtually unchanged at just  Downturn in the coal and real estate markets 1.1%. The largest share declines were reported negatively impacted Baotou Beiben’s sales. by CNHTC and Beiqi Foton. Sales of heavy trucks The company’s future success hinges on grew at a faster pace than the previous quarter locating new revenue market sources. with y/y growth up 32%.

Major factors impacting fourth-quarter sales (For reference, information on strategic alliances included: between China’s commercial truck OEMs and  The slight drop in GDP slowed freight demand OEMs from around the world is included on Page as infrastructure and real estate investment A-1 of this report.) contracted.

Heavy Duty Truck Market Share Trends Yr/Yr % Q4'13 Sales Q4'12 Sales Make Change

Dongfeng Group 31,588 19,874 58.9% 25.0%

CHNTC Sinotruk 24,430 17,898 36.5% 19.3%

Shaanxi Auto 17,440 11,451 52.3% 13.8%

BAIC Group 14,088 12,978 8.6% 11.1%

FAW Group 11,309 9,907 14.2% 8.9%

Anhui JAC 8,271 6,167 34.1% 6.6%

Shanghai Auto 7,019 3,800 84.7% 5.6% Q1'13

Anhui CAMC 3,709 2,566 44.5% Q2'13 2.9% Q3'13 Beiben 2,143 2,575 -16.8% 1.7% Q4'13 Tri-Ring Group 1,386 770 80.0% 1.1% Other 4,986 7,623 -34.6% 4.0% Total 126,369 95,609 32.2% 0% 5% 10% 15% 20% 25% 30%

TRACTORS  Much like the heavy truck situation, sales increases primarily resulted from pre-buys in FAW maintained its first-place market share anticipation of the National IV Emissions and ranking in Q4, despite a drop from the previous VAT implementations. quarter’s 33% share to just 30% of the market. BAIC and Dongfeng also retained their respective  Although the overall macroeconomic slowing second and third place finishes in Q4, the former doesn’t fare well for this market, logistics with 21% market share and the latter with 19%. companies are encouraged to purchase The top five were rounded out with Shaanxi and additional units to move product purchased Sinotruck at 13% and 8%, respectively. In China’s via online shopping. tractor market, the top five manufacturers control  Q4 sales are compared to a low 2012 base. 90% of the segment’s sales. This is actually down slightly from the 92% controlled by the top five in  Chengdu Dayun was able to double its sales Q3’13. SAIC Motor moved into the top eight q/q as its lightweight products are becoming producer category with a 1.5% market share, more accepted in the marketplace. overtaking Anhui Hualing. Year over year,  Dongfeng’s growth resulted from larger Chengdu Dayun claimed the largest growth, albeit logistics companies purchasing en masse against a low 2012 comparison, while Baotou ahead of the VAT implementation, growing North Benz was the only mainstream 122% y/y. manufacturer to see sales decline. Year over year growth for this industry segment reached 66%.  Shaanxi Automobile’s y/y growth slowed to 41%, compared to the previous quarter’s Factors influencing the Q4’13 tractor market 100+%, as its LNG tractors continue to boost included: sales.

Heavy Duty Tractor Market Share Trends Yr/Yr % Q4'13 Sales Q4'12 Sales Make Change

FAW Group 23,863 14,846 60.7% 29.6% BAIC Group 17,121 9,055 89.1% 21.3% Dongfeng Group 15,239 6,861 122.1% 18.9% Shaanxi Auto 10,477 7,412 41.4% 13.0%

CHNTC Sinotruk 6,359 5,465 16.4% 7.9%

Chengdu Dayun 3,389 18 18727.8% 4.2% Q1'13 Beiben 1,406 2,227 -36.9% 1.7% Q2'13

Anhui CMAC 1,280 878 45.8% Q3'13 1.5% Q4'13 Other 1,392 1,689 -17.6% 1.8%

Total 80,526 48,451 66.2% 0% 5% 10% 15% 20% 25% 30% 35%

MEDIUM DUTY TRUCK OEMs  Compared to a high baseline in Q4’12, medium duty sales fell year over year, with Major movement occurred in the medium duty only Dongfeng and Sinotruk returning positive market again in Q4, an indication of intense y/y growth in Q4’13. competition. Dongfeng, which dropped from 32% to 23% of the segment in Q3, still sits in the leader  To a lesser degree than their heavy duty position and has regained part of the prior counterparts, emission standard and VAT pre- quarter’s losses, now at 31% market share. FAW buys will positively impact the medium duty held onto second place in the quarter, moving to segment. nearly 22% of the segment and narrowing the gap  Dongfeng’s growth came from its customer between first and second position. Chongqing base of larger logistics companies, as well as Lifan fell to third place in Q4, overtaken by from market approval of its new products. Sinotruck, 3rd, and Qingling Motor, 4th. Jinbei Auto, who was in fifth position last quarter, plummeted  Sichuan Nanjun Auto Group’s sales to tenth in Q4 with -84.6% y/y sales. Total market decreased y/y, -48.8%, experiencing a share of the top 3 manufacturers grew from 54% transition period after establishing a joint in Q3 to 62% in Q4, its highest concentration in venture with South Korea’s Hyundai Motor. three years.

Factors influencing the Chinese medium duty truck market in the fourth quarter include:

Medium Truck Market Share Trends Yr /Yr % Q4'13 Sales Q4'12 Sales Make Change

Dongfeng Group 20,098 17,664 13.8% 30.9%

FAW Group 13,920 14,888 -6.5% 21.4%

CHNTC Sinotruk 6,283 5,760 9.1% 9.7%

Qingling 4,929 6,801 -27.5% 7.6%

Chongqing Lifan 4,194 13,382 -68.7% 6.4%

Anhui JAC 2,929 3,027 -3.2% 4.5%

Sichuan Nanjun 2,717 5,304 -48.8% 4.2%

BAIC 2,638 3,497 -24.6% 4.1% Q1'13

Shandong Tangjun 2,519 5,066 -50.3% Q2'13 3.9% Q3'13 Jinbei Automotive 1,631 10,577 -84.6% 2.5% Q4'13 Other 3,177 3,160 0.5% 4.9%

Total 65,035 89,126 -27.0% 0% 5% 10% 15% 20% 25% 30% 35%

LARGE & MEDIUM BUS OEMs  Sale of energy efficient buses was boosted by the Notice on Continuous Promotion of Yutong Group’s Q4 sales skyrocketed to 34%, Energy-efficient Vehicles, which was issued in from the previous quarter’s 24%, propelling them late September, despite lower subsidies over King Long and into the market’s lead included in the notice. position. King Long fell from Q3’s 27% market share to 25% in Q4. JAC Motor maintained its  Local municipalities continue to subsidize third position, but share dropped from 9% to 8% LNG and hybrid buses, supporting local bus during Q4. Dongfeng (7%) and FAW (5%) were manufacturers. able to hold their respective places of fourth and  Zhengzhou Yutong achieved considerable fifth, while BAIC Group overtook the sixth position success in overseas markets during Q4. from Zhongtong. The top two bus makers garnered 51% of the market in Q3, but that  Yutong’s benefits came from government jumped to 58% in Q4. This is a three-year high contracts. that surpasses Q2’s 56%, as well as the 52%  Yangzhou Asiastar Bus’ sales are improved achieved in Q4’12. Overall, the large and medium by a joint venture with Weichai Power. bus markets grew a significant 6.3% in Q4, compared to the -12.5% drop of Q3.  Public transportation continues to be encouraged in North China, amid the serious The large and medium bus market was impacted air pollution situation. by the following factors in Q4’13:  Alternative fuel options spur the sale of  Despite slowing economic conditions in Zhongtong buses, but this is negatively China, central government spending rose impacted when subsidies are lowered. 15% in Q4, stimulating bus sales.

Large and Medium Bus Market Share Trends Yr/Yr % Q4'13 Sales Q4'12 Sales Make Change

Zhengzhou Yutong 18041 15025 20.1% 33.7%

King Long 13232 11525 14.8% 24.7%

Anhui JAC 4222 4734 -10.8% 7.9%

Dongfeng Group 3485 3951 -11.8% 6.5%

FAW 2718 2918 -6.9% 5.1%

Zhongtong 1814 1184 53.2% 3.4%

BAIC 1471 1745 -15.7% 2.7% Q1'13 SAIC 1439 1276 12.8% 2.7% Q2'13 Yangzhou Asiastar 1433 867 65.3% Q3'13 Bus 2.7% Q4'13 Jinhua Youngman 1310 1082 21.1% Auto 2.4%

Other 4384 6052 -27.6% 8.2%

Total 53,549 50,359 6.3% 0% 10% 20% 30% 40%

STRATEGIC ALLIANCES The construction will take three years, with a Sinotruk and Datong Beiyu New Energy planned investment of 1.1 billion RMB (US$178 Company Form Strategic Cooperation on million) during the first phase. Partial operations Transforming Vehicles into Oil- and Gas- are expected to begin in 1H’14 and when Powered: On October 12, 2013, Sinotruk and completed in late 2016 production over 10 billion Datong Beiyu New Energy Company signed a RMB (US$1.6 billion) is anticipated. This contract strategic cooperation plan on transforming will enhance the manufacturing capacity in vehicles into oil- and gas-powered in Datong, Suining and will be crucial for JAC Motor to Shanxi. Sinotruk’s gas engine, jointly developed explore the Chinese Southwest market. with EContols in the US, is one of the most advanced and most stable gas engines in China, Zhengzhou Yutong and China National winning a large share of the market. Datong Beiyu Machinery Import & Export Corporation (CMC) New Energy Company is a national manufacturer Sign Strategic Cooperation Plan: On December of specialty vehicles. The cooperation on 19, 2013, Yutong and CMC signed a strategic transforming vehicles into oil- and gas-powered cooperation agreement which requires full-scale will be supported technically by Sinotruk, who will cooperation of the two companies’ key also provide the vehicle components. Datong businesses. CMC is the first large state-owned Beiyu will be responsible for the conversion. Both export enterprise in China, exceeding in its will establish service points to guarantee after- information channel, market development, sales service of these transformed vehicles, business integration and project investments. ensuring their safety and reliability. Yutong is one of the leading companies in bus and machinery products in China with sales and JAC Motor’s Southwestern Base Makes service networks around the world. Suining, Sichuan Home: On December 1, 2013, People’s Government of Suining, Sichuan, and JOINT VENTURES China Anhui Jianghuai Automobile Co., Ltd. (JAC Motor) signed a construction contract. It is Dongfeng Motor Group and Volvo Group reported that the base will be located in Suining Receive Initial Approval for Joint Venture: The Anju Industrial Park, approximately 1100 NRDC (National Development and Reform mi/1800km southwest of Beijing, and will include Commission) gave its approval of this joint three centers: JAC Motor Automotive Engineering venture, which was initially announced in January and Transformation Plant, the Southwestern 2013. The NRDC, an agency under the Chinese Distribution Center, and the Southwestern Sales State Council, has administrative and planning and Marketing Company. control over the Chinese economy. While NRDC approval is an important step toward completion of this venture, other approvals are still needed. The plan is for AB Volvo to acquire 45% of a new subsidiary of DFG, Dongfeng Commercial Vehicles (DFCV), which would include most of DFG’s existing medium and heavy duty commercial vehicle business. Completion of the transaction is projected for mid-2014.

Hyundai and Sichuan Nanjun Auto Group Announce Joint Commercial Vehicle Venture: Korea’s Hyundai and Sichuan Nanjun announced plans to produce Hyundai Trago model cargo and dump trucks at a plant in Ziyun Sichuan Province. The facility, a 50/50 venture, will have an annual volume of 160k units. The effort is part of Hyundai’s strategic plan to produce 400k

commercial vehicles by 2020, with production World’s Largest LNG Project Enters Operation reportedly targeted for China, Turkey and the U.S. in Inner Mongolia: As reported by China production is scheduled to begin later in chinatrucks.com, Wuhai City of Inner Mongolia 2014. announced that the world’s largest coke oven gas liquid natural gas project was complete and MARKET DEVELOPMENTS entered full operation in early January 2014. The project is located approximately 600mi/1000km Sinotruk Develops Team to Address Sichuan west of Beijing. Petro China Kulun Hauyou Province LNG Truck Market: Sinotruk is working Natural Gas Co. invested 4.7 billion yuan on the project with Sichuan Zhongyou Clean (US$750 million) in the project, which has been Energy, LNG refilling equipment producer Huaqi under construction since April 2011. Initial NG Houpu and a credit agency. The goal is to production began in October 2012, with full promote sales of LNG in Sichuan province in the production attained on January 6 of this year. 2014 through 2018 timeframe. The initial Coke oven gas is a byproduct of the “coking” agreement covers the purchase of 600 LNG process that converts coal into coke which is used trucks. Each LNG refilling station is anticipated to to make steel. The process removes liquid and have service capacity for 200 to 300 HD gas impurities in the coal, and can cause commercial trucks. environmental issues. The project will capture and re-use 1.5 billion cubic meters of coke oven gas, Shacman LNG Heavy Truck Wins Orders in converting it to 320 million cubic meters of LNG, Sichuan: The truck OEM signed orders with or approximately 250,000 tons of gas, annually. Baima Mining and Panzhihua Fubang for 100 The project will replace the use of as much as LNG HD Trucks: Shacman’s success in NG trucks 940,000 tons of coal, while the LNG will be used is supported by its supply relationships with to replace diesel fuel in transportation. companies such as Weichai, Fastre, and Hande. Separately Shacman noted that their LNG truck sales volume was 11,000 units in 2013, with a projection of 16,000 trucks for 2014.

Foton Awarded with Orders for 90 Auman LNG Heavy Trucks: Foton received orders for 40 LNG heavy trucks from Zio Fulaide Automotive Sales Co., Ltd in Shandong and 50 LNG heavy trucks from Tangshan Jidong Longsheng Automotive Sales Co., Ltd. The major factors supporting the popularity of LNG trucks are their lower emissions and operations cost.

IMPACT OF NATURAL GAS FUEL ON THE Natural gas’ impact on the truck market COMMERCIAL VEHICLE MARKET Traditionally, heavy trucks in China are fueled by Despite decades-long development in other diesel. However, increasing costs of diesel and countries, natural gas (NG) fueled commercial the growing unacceptable levels of air pollution vehicles are relatively new in the Chinese caused by this fuel have created an opportunity marketplace. NG powered buses appeared in for the development of LNG-powered units. In the 1950s, but never dominated the market. 2011, there were 3,000 LNG heavy duty units However, the growing demand for energy sold in China. That number increased to 17,000 conservation and increased public awareness of in 2012 and grew to 30,000 units in 2013. environmental protection in recent years has Despite the higher vehicle premium reported spurred demand for low fuel consuming and between 70,000 and 100,000 Yuan ($11,400 to reduced emission generating commercial $16,000 USD) for an LNG fueled vehicle over its vehicles. Although NG is available in diesel counterpart, the price of NG is 20% to compressed form (CNG) or liquefied form 40% cheaper than diesel. (Note: NG price varies (LNG), China’s domestic focus for commercial by region. Because the West region has more vehicles is LNG due to a lack of pipelines. NG available, the price is cheaper than on the Much like other countries, China’s commercial East coast where NG must be imported. vehicle use of natural gas fuel should be Additionally, NG prices are market driven, while analyzed via the different sectors. Because diesel prices are set by the government.) With trucks and tractors are used to transport goods, the fuel savings, some companies are able to manufacturers and operators chose whatever recover their premium within one year, meaning form of fuel is most economical. On the other the firm will spend 70 to 80 thousand yuan less hand, buses are primarily used for mass transit, per year in fuel than some of their competitors. whether it is long-distance travel, inter-city Because vehicles using LNG reduce emissions transit, or school transportation. Many of these compared to diesel-driven units, they are aligned operations are conducted by government with national policies aimed at reducing air entities and, while economics are important, pollution. Their purchases are supported by local more consideration is given to environmental governments, especially those rich with gas impact. resources such as Shaanxi and Xinjiang. LNG vehicles are also supported in Shandong, where NG stations have been built throughout the province. As with the development of NG in the United States, China’s growth is beginning regionally. Due to the rapid vehicle sales growth in Shaanxi and Xinjiang, the Shaanxi Automobile Group became the first OEM to sell more than 10,000 LNG heavy trucks in 2013. The biggest limitation to the acceptance of heavy duty trucks powered by LNG is the minimal number of refueling stations. The impact of a lack of infrastructure is similar in both China and the U.S.

Most provinces and cities in China do not yet Most of the renewed government subsidies for have, or have few, NG stations. alternative fuel vehicles are designed for electric buses, but some plug-in hybrids will benefit from The National IV Emission Standards are these incentives as well. However, market projected to be in place nationwide in early stability of these units is poor, despite the 2015. Currently, the price of trucks that will meet available funding. Because many of the hybrid these standards costs 20,000 to 40,000 Yuan units are not eligible for grants, the sale of these more than level III vehicles ($3,200 to $6,400 vehicles remains relatively unchanged. On the USD). Each regulatory iteration, and the other hand, LNG and trolley bus sales are more associated price increase, weakens diesel’s promising in the alternative fuel arena. Of the advantage. Additionally, the price of diesel is two, LNG buses offer more opportunities as they expected to climb, which will make the NG are not restricted by the availability of cable option more attractive. As price premiums construction as are trolley units. LNG buses between diesel and NG powered commercial comprise more than 50% of the total new energy vehicles narrow, the opportunity to develop more bus market. demand for LNG heavy trucks will grow. As demand for these vehicles grow, construction of Many local governments are encouraging the fueling stations to serve the market will also be use of LNG buses. Beijing declared that it would pressured to expand rapidly. The market share no longer purchase diesel buses and 3,000 of LNG heavy trucks was 4% in 2013, and is buses purchased in 2013 were LNG. projected to grow to 10% in the next few years. Guangzhou currently has 1,619 LNG buses in operation, more than 30% of its fleet. Shandong

subsidizes its LNG buses with 30,000 yuan per Natural gas’ impact on the bus market bus, and Sinchuan has launched a pilot program with eight cities to promote LNG buses. Dazhou Although some medium buses use LNG fuel, plans to use more than 800 LNG buses as part most units running on LNG in China are large of the Sinchuan program by 2015. buses. They are primarily used in transit buses, funded by the government for public Among the total sales of large and medium transportation purposes. During the past two sized buses in 2013, LNG accounted for 10%. years, the Chinese government has strongly This percentage is forecast to increase at a promoted the use of alternative fuel (or new much faster rate in the next few years. energy) vehicles as they ease urban traffic pressure and reduce air pollution. With stiff competition from railways for passenger transport, long-distance coach sales have declined in recent years. However, the sale of public buses has been supported by national policy. In 2013, public bus sales accounted for nearly 40% of the total bus market. The percentage of new energy (alternative fuel) units exceeds 60% of that market segment. For reference, new energy buses include electric, hybrid, trolley, and LNG powered units.

CHINA NS4 EMISSION STANDARDS o Dealers can still sell the NS3 vehicles IMPLEMENTATION IMPLICATIONS for activities which require no registration, such as agricultural and On May 30, 2005, the Ministry of Environmental other uses by rural owners. Protection (MOEP) and the general o NS3 vehicles could also be sold in Administration of Quality Supervision, Inspection regions where full NS4 implementation and Quarantine of the People’s Republic of has not occurred. China (AQSIQ) jointly launched a policy, which o NS3 vehicles can be exported to any scheduled the National Stage IV Emission country that will accept them. Standard for Diesel (NS4) to to be implemented on January 1, 2011.  Fleets and end users are not permitted to Although the national government approved the trade or resell older vehicles through implementation of China NS4, it later delayed traditional channels. full implementation until January 1, 2015. In o Vehicles can be sold for non-registering China the local/provincial governments control activity uses in rural areas. the actual implementation and date. The major o Older vehicles can be sold for use in reason for the delay is the lack of availability of regions where full implementation has lower sulfur fuel. not occurred. o These vehicles would be sold for export. In addition, they specified several stages for the o Vehicles, which cannot be registered to implementation of this regulation. The first step another by law, could be retailed in a required the rule to become effective in July “gray market” manner by which the 2013 in first tier cities such as Beijing, Shanghai original owner would maintain the and Tianjin. The primary reason these areas registration under his name but were chosen for initial implementation was the ownership would unofficially belong to higher levels of air pollution found there. another person or company. The next step was to modify the requirement allowing new vehicles with NS3 certification to  Specialty body builders need to pre-buy the continue to be sold/registered. Of course, newer newer technology to insure completed trucks designed vehicles were still required to meet can be registered. NS4 certification. This approach to implementation drives a pre- The major difference between the buy, but unlike the rest of the world the China implementation process in China and the rest of pre-buy is driving purchases of newer the industrial world is that China controls the technology vehicles to support new registrations. change based on “registration” date rather than In the rest of the world pre-buys generally occur “manufacturing” date. This has several to avoid higher costs or untested technology consequences that drive market behavior: solutions. The most advanced areas for NS4 are Guangzhou and Shenzhen (near Hong Kong).  Dealer inventory of the older certification Hualing and Dongfeng are the vehicle level may no longer be registered. manufacturers leading the NS4 change. FAW Therefore, those vehicles cannot be sold. and truck builders using Weichai engines have o This forces a pre-buy of newer been slower to adopt as they focus more on technology truck inventory to minimize rural areas with lower prices. inventory risk.

DATA SPECIFICATION: Trucks in China are classified by European weight categories versus U.S. categories. Medium duty trucks in China are rated between 6 and 14 tons. That is reasonably equivalent to Class 4-7 vehicles in the USA. Heavy duty trucks in China are those with GVWs over 14 tons and are equivalent to heavy duty Class 7 and Class 8 in the USA. The table below illustrates the classification system of vehicles in China.

Classification of trucks in US Classification of trucks in China Mini Light Medium Heavy Class Weight (pounds) <1.8T 1.8-6T 6-14T >14T Class 1 6,000 Class2 6,001-10,000 Class 3 10,001-14,000 Class 4 14,001-16,000 Class 5 16,001-19,500 Class 6 19,501-26,000 Class 7 26,001-33,000 Class 8 >33,000

Where US trucks fall in China’s classification system

Not included in this class

Small portion included in this class

Major portion included in this class

Totally included in this class

Bus Market Segmentation Passenger Capacity Bus Type Bus Length (Including Driver) 7 to 10 Meters Medium Bus 24 to 43 23 to33 Feet Over 10 Meters Large Bus 44 or more Over 33 Feet

The importance of the China commercial vehicle market has resulted in several alliances being formed between China OEMs and OEMs from around the world. These arrangements can vary in their complexity and strategic intent. For reference, the following table lists current alliances for China’s top commercial vehicle OEMs.

China OEM Alliance with

BAIC Group (Foton) Daimler

Dongfeng Group Volvo

Anhui JAC Navistar

Shanghai Auto (SAIC) / IVECO Hongyan Truck

CHNTC Sinotruk MAN

Natural Gas--- •is gaining traction as a fuel for heavy trucking •acts differently than other fuels when it escapes containment •is lighter than air and will rise •requires code compliant maintenance facilities

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TRUCK FUEL PAYBACK CALCULATORS

Truck fuel payback calculators take the mystery out of making the best fuel choice for the application. They quickly compare diesel powered trucks to NG-spark, HPDI and DNG. Further, by comparing these results, you can then also compare NG-spark against either of the two dual fueled trucks, both new and used.

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China Commercial Vehicle OUTLOOK

Americas Commercial Transportation Research Co., LLC, 2014