On June 6th Luo Zheng, the President of Transportation Finance at Ping An Bank, Xu Sitao, Chief Economist and Partner of Deloitte China, Ashvin Chotai, Managing Directo of the Intelligence Automotive Asia and the moderator, Chen Yudong, President of Bosch Investment discussed the challenges and opportunities presented to the automotive market after China enters the “New Normal”.
Since China’s Economic Reformation 30 years ago, the industries of China have constantly been doubted. These doubts however have never slowed down the evolution of the auto industry. As China begins its 13th 5 Year Plan, things are looking bright for the industry yet again.
The 13th 5 Year Plan will be focused on stabilizing and rebalancing the economy, managing debt and making reforms to China’s SOEs. The aim of the plan is to prepare for a slowdown after China’s rapid 10 years of expansion. This considered what must the auto industry focus on in its development? What are the projections of consumer demands in the industry? How can the reforms of the state-owned enterprises inspire the structure of the auto industry and the competitive landscape?
The specifics of the plan look at raising production from 28 million units to 30 million units. It will put an additional five or size Chinese auto companies in the top twenty companies of the world. They hope to have 50% of cars come from Chinese brands and market Chinese auto brands as the leading manufacturers of the world. They are targeting the sales of new energy vehicles to reach 1 million by 2020.
Luo Zheng discussed the six trends that will arise from the plan being put in place. First, a supply side reform in which companies is more aware of consumer preferences and the movements of the market and industry. Second, the marriage of the Auto Industry and Internet will continue to rapidly develop smart car technology and give a boost to the traditional auto industry. Third, new energy cars will increasingly become a more mature product in the marketplace. Fourth, in this new era, production efficiency will need to continue being strengthened. This will come about through smarter factories with more efficient production lines that will lower labor costs while also allowing cars to be produced faster to quickly evolve to consumer preferences. Fifth, the profit model of the Auto Industry is looking more and more like that of the service industry. The profit of automobile services will reach 60%t o 70%. Sixth, the need of mergers and acquisitions between domestic and international companies will continue to increase. Overseas expansion has become an important part of enterprise strategy. The Chinese Auto Industry can improve the competition internationally by exporting, investing, merging and acquiring among other things.
Luo Zheng discussed his thoughts on how financial institutions can empower the growth in the auto industry. Firstly, integration between the industry and financial institutions should be kept in mind through the supply-side reform. Secondly, financial institutions need new, innovative financial products that offer a wider variety of services to match the needs of a quickly changing industry. Finally, financial institutions need to better their expertise in the industry so they can better serve it.
Xu Sitao had different opinions. He was skeptic about reaching the numerical benchmarks set by the plan that included having Chinese companies produce 50% of cars. He did however agree with the fact that the sale volume of Chinese new energy vehicles can reach 1 million by 2020.
“It can be easily seen that the Five Year Plan has five guiding principles— innovation, eco friendliness, coordination, stable growth and auto-sharing,” said Ashvin Chotai. Chotai hopes that China can find the relation between these five guiding principles and the auto industry. “As a foreigner, I worried about the increase of China’s debt ratio which seemed similar to that of Japan which resulted in a ten-year period of economic stagnation.” He also referenced the fluctuation of the currency and expressed concern of the government’s monetary policy. In addition he said, “ The Chinese government never formally admits how high the whole debt level actually is. This creates a greater economic risk for China as the economy slows down.”
All in all, the development of the Chinese economy is fundamental to that of the auto industry which will considerably test the ability of policymakers.