China's auto industry is changing from explosive growth to stable growth

On November 28, Chen Qingtai, the deputy director of the Development Research Center of the State Council, addressed the "China Automotive Industry Summit" hosted by the China Europe International Business School. He highlighted that China's auto industry is transitioning from a phase of explosive growth to a more stable and sustainable development path. Chen pointed out that a growing number of Chinese residents now have the financial capacity to purchase cars, and previously suppressed demand is gradually being realized. Following China’s accession to the WTO, consumer purchasing power has been steadily increasing, and the cultural tendency for herd behavior has further fueled car ownership in certain cities. This shift contributed significantly to the rapid expansion of both automobile production and sales in 2002, with total output rising by 36.7%, car production surging by 85%, and SUVs growing by an impressive 180% in 2003. However, this rapid growth also led to over-optimistic investment decisions. Many companies and investors mistakenly assumed that such high-growth conditions would continue indefinitely, leading to ambitious and sometimes reckless investment plans. According to the National Development and Reform Commission, China's current vehicle production capacity stands at 8 million units, with an additional 2.2 million under construction. Once completed, total capacity could reach 10.2 million vehicles. Despite the shift to a more stable market, many investors remain overly optimistic. Chen noted that current investment levels are expected to support up to 10 million vehicles. However, in the face of intense price competition, the utilization rate of production capacity has dropped to around 55%. While sales increased by 17.9% in the first nine months of the year, profits fell sharply by 52.9%, with 15 automakers reporting losses and eight others experiencing declining profits. Only three companies saw their profits rise. He emphasized that the previous period of rapid growth was driven by short-term factors, and long-term trends should be based on steady per capita income growth. Drawing from the experiences of developed nations, he explained that once per capita GDP reaches $1,000 to $2,000, countries typically enter a phase of increased car consumption. With China's per capita GDP currently just over $1,000, there is still significant room for growth. In fact, in the southeastern coastal regions, where about 200 million people live, per capita GDP has already surpassed $2,000, even reaching $3,000 in some areas. As economic development spreads from east to central and western regions, more people will join the car-buying trend, fueling long-term growth in the automotive sector. Looking ahead, Chen projected that by 2020, China's GDP could grow at an average annual rate of over 7%, pushing per capita GDP from $1,000 to $4,000. This, combined with efforts to boost domestic demand and consumer spending, is expected to create a favorable environment for sustained auto market growth. The growth rate is likely to slow from 20% to around 10% annually. By 2020, the number of cars per 1,000 people is expected to approach the global average. According to calculations, China had approximately 35 million vehicles in 2005, with a demand of 5.5 million that year. By 2010, the total reached 60 million, with a demand of 9 million. In 2015, the number of vehicles is expected to hit 95 million, and demand could reach 13 million. By 2020, the total may reach 140 million, with demand hitting 16 million. "It is certain that China will become the fastest-growing and most demanding automobile market in the world," Chen concluded.

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