The Rise of China's Auto Industry and Its Impact on the U.S. Motor Vehicle
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The Rise of China’s Auto Industry and Its Impact on the U.S. Motor Vehicle Industry Rachel Tang Analyst in Industrial Organization and Business November 16, 2009 Congressional Research Service 7-5700 www.crs.gov R40924 CRS Report for Congress Prepared for Members and Committees of Congress The Rise of China’s Auto Industry and Its Impact on the U.S. Motor Vehicle Industry Summary The automobile industry, a key sector in China’s industrialization and modernization efforts, has been developing rapidly since the 1990s. In recent years, China has become the world’s fastest growing automotive producer. Annual vehicle output has increased from less than 2 million vehicles in the late 1990s to 9.5 million in 2008. In terms of production volume in 2008, China has surpassed Korea, France, Germany, and the United States, trailing only Japan. A disproportionate share of China’s output was heavy vehicles in the 1990s. However, since 2000 China’s growth has been led by an increase in passenger cars, which now account for more than 65% of its vehicle production. China’s automobile industry has continued to expand despite the global economic downturn. From January to October 2009, more than 10 million vehicles were sold in China. If such growth continues, China is on its way to becoming world’s largest auto market. Unlike Korea or Japan, China’s automotive industry has developed extensively through foreign direct investment. This investment has come in the form of alliances and joint ventures between international automobile manufacturers and Chinese partners. The international automobile manufacturers are unlikely to promote Chinese exports that compete with their own products in other markets. As a consequence, the Chinese companies that have expressed a strong interest in exporting cars have not had strong ties to foreign car producers and that, consequently, may struggle to meet safety and emission standards in industrialized countries. However, if independent producers, such as Geely, can achieve much higher standards, they could prove to be a strong international competitor. Ford’s proposed sale of Volvo to Geely may help the Chinese company improve its products. China exports and imports few motor vehicles. Exports are growing much more rapidly than imports and are mostly light trucks and passenger cars shipped to developing country markets. By contrast, Chinese auto parts exports are already making inroads into the United States and other developed markets. While U.S. motor vehicle trade with China was insignificant in 2008, the United States imported more than $5.5 billion in parts from China, while it exported about one- eighth of that amount. Many of these imports are aimed at the aftermarket, as most of what China now exports to the U.S. market are standard products such as brake parts, electrical and electronic parts, and seating and interior trim. But with high rates of investment and strong growth in China by the leading U.S. manufacturers of both cars and parts, major motor vehicle companies are likely to increase sourcing from China. There have been a significant number of trade disputes with China ranging from implementation of obligations that were made when China joined the WTO, China’s exchange rate policy, lax trade law enforcement, and alleged subsidies to industrial producers. With a bilateral U.S. trade deficit that rose to more than $268 billion in 2008, representatives of the Obama administration, as well as many Members of Congress, would like to achieve more balance in U.S.-China trade relations. Congressional Research Service The Rise of China’s Auto Industry and Its Impact on the U.S. Motor Vehicle Industry Contents Introduction ................................................................................................................................1 China as a Major Auto Producer and Consumer...........................................................................2 China Becomes a Top Motor Vehicle Producer ......................................................................2 Foreign and Domestic Producers in the Chinese Motor Vehicle Industry......................................8 Independent Production vs. Foreign Cooperation.................................................................12 SAIC and Nanjing Automobile Group Buys Bankrupt Rover Group; SAIC Later Buys Nanjing.............................................................................................................13 Chinese Auto Assemblers and Parts Makers ..................................................................14 Automotive Readjustment and Revitalization Plan ..............................................................15 Impact of China on the U.S. Automotive Market .......................................................................17 Chinese-Made Vehicle Imports Not Imminent .....................................................................17 The Chinese Auto Parts Sector ............................................................................................19 U.S. Policy Issues in Economic Relations with China................................................................22 Chinese Auto Sector Commitments .....................................................................................22 China Safeguard Provisions (Section 421)...........................................................................24 China Moves to Investigate U.S. Auto Subsidies .................................................................26 Figures Figure 1. Leading Motor Vehicle Producers.................................................................................4 Figure 2. BRIC Countries Motor Vehicle Production ...................................................................5 Figure 3. Chinese Motor Vehicle Production................................................................................6 Figure 4. Largest Multinational Motor Vehicle Manufacturers in China, 2005-2008.................. 11 Figure 5. Largest Chinese Motor Vehicle Manufacturers, 2005-2008 .........................................12 Tables Table 1. Motor Vehicle Sales in China and Market Share of Selected Manufacturers, 2007-2008..............................................................................................................................10 Table 2. U.S.-China Automotive Trade ......................................................................................20 Contacts Author Contact Information ......................................................................................................26 Congressional Research Service The Rise of China’s Auto Industry and Its Impact on the U.S. Motor Vehicle Industry Introduction1 Within the Chinese industrialization process, no development may be more important than the growth of China’s automotive industry, which is a catalyst for many other linked sectors of the economy. In particular, China’s focus on the auto industry and the supporting infrastructure and development patterns that accompany it may have the potential to upset many existing manufacturing and trade relationships in significant ways that are, at present, unclear. Although Chinese domestic automotive assembly firms appear unlikely to become significant exporters of automobiles to the United States in the short term, the Chinese government appeared, in its March 2009 three-year plan for the auto industry, “Automotive Industry Readjustment and Revitalization Plan,” to be taking a long-run view of the sector’s development.2 The automobile industry has been a major driver of the U.S. and other industrial economies since Henry Ford applied assembly line techniques for manufacturing cars and changed the product from a luxury item for wealthy consumers to a nearly essential component of everyday life. The automobile industry is already a major force propelling the Chinese economy and its workforce; the main question is whether China will mainly consume automobiles in its own market, take a more aggressive export-oriented approach similar to that of Japan and Korea, or create some mixture of these two. Indicators suggest that China, already far more open to foreign investment than either Japan or Korea, may take a hybrid approach that focuses on domestic consumption while also building vehicles for export in order to induce Chinese companies to produce world class cars. Additionally, China’s automotive parts manufacturing sector is export focused, increasingly complex, and rapidly moving from low-cost to more value-added production. While the global economic downturn has had a major impact on the U.S. automotive sector, China’s rapidly growing auto industry has been a bright spot—especially for foreign firms with a presence in China. In 2008, China produced nearly eight times as many motor vehicles as it did in the mid-1990s. With annual production of 9.5 million vehicles in 2008, it surpassed the United States for the first time, as the second largest national vehicle producer, trailing only Japan in total vehicle output. From January to October 2009, about 10.89 million vehicles, reportedly, were sold in China.3 If China can sustain this level of growth, it will overtake the United States to become the largest auto market in the world. Chinese vehicles have become increasingly sophisticated since the 1980s, as a result of partnerships with major foreign automakers (Volkswagen, GM, Toyota, Honda, Nissan, Mazda, Hyundai and Kia) designed to foster “technological cooperation.” An activist government policy has