Q3 China auto&parts turned to net import

After world financial crisis broke out in 2008, main auto markets across the world have been hit heavily by the crisis. As a result, the growth gap between every auto markets began to be more obvious. Recovery of auto markets in developed countries is also faced with many challenges and the development trend of emerging markets also divided sharply. Countries such as China have seen an explosive growth in their auto industry while other countries including Russia still hit by the meltdown in their auto industry. Impacted by the above fact, China's import and export of autos and auto parts differed significantly in recent quarters.

A great change in import and export of China’s auto industry in the third quarter

1 Since the second take-off of China's auto market in 2005, China has become a monthly net importer of auto industry. In September 2009 China’s monthly imports of autos and auto parts reached 3.65 billion dollars, higher than 3.34 billion dollars of U.S. for the first time and the net imports also reached 310 million dollars, reflecting that China's favorable policies to stimulate domestic demands for autos gained progress. Favorable policies not only contribute to China's economic growth but also can help the world out of economic recession as soon as possible.

2 Total imports of auto parts amounted to 2.1 billion dollars in September 2009, 61% than that of August 2008 and set a good example for other auto markets of the world. September 2009 after abolishment of The Measures for the Administration of Import of Automobile Components & Parts Featuring Complete Vehicles by Chinese government, imports of auto parts and entire vehicles also in positive growth, which is definitely beneficial to stimulate China’s domestic demands and improve the trade balance.

3 The exports of entire vehicles still have a long way to go .With auto output reached 1.3 million units in September auto exports especially the exports of narrow gauge passenger cars are still in negative 60 percent growth, it also requires us to take actions in order to go out effectively while improve the level of opening up.

4 There were an increasing number of protectionism across the world. In September 2009 countries such as Russia, Ukraine, Vietnam and other teams all take more aggressive measures to protect their own products which imposed great pressure on Chinese enterprises’ exports.

5 Import and export routes became much diversified .Share of State-owned capital in the total imports and exports began to drop slightly .Share of joint ventures and some individual-funded enterprises increased dramatically at the same time.

　　State of import and export policies in China

Adjustment of The Measures for the Administration of Import of Automobile Components & Parts Featuring Complete Vehicles (The Measures for short)

On September 1 National Development and Reform Commission (NDRC), Ministry of Finance, Ministry of Commerce, General Administration of Customs of the People’s Republic of China together announced that The Measures would be abolished. Therefore China wouldn’t collect the same tariff level of the auto parts whose value are equal to or exceed 60% of the entire vehicle. According to the ruling of WTO Chinese government abandoned The Measures. China's accession to WTO documents wrote: “For the treatment of auto parts tariffs, China must confirm it hasn’t setting up a tariff lines for sets of auto parts and half sets of auto parts. If China plans to set up such a tariff lines, the level shouldn’t be more than 10%.” People familiar with the WTO legal documents had long estimated that China would lose the appeal. As a matter of fact, abolishment of The Measures can help to reduce the cost of some high-end models. Additionally, cars made by Korea auto manufacturers sold well in China thanks to geographical advantages and the devaluation of WON.

With respect to the above fact, China Passenger Car Association determined to take the new situation into serious account, otherwise, localization of auto parts In China and conditions of joint ventures in China would be damaged at the same time. Indeed, we shouldn’t be afraid of risks if we expect to main progress. Don’t think with the development of China's auto industry, no one is engaged in assembling cars .A number of joint ventures as well as some individual-funded enterprises in China were developed from assembling cars. Considering the huge profit, they are supposed to do that in the future. Car production in the first nine months of 2009 surged 31.56%, while the number of CKD assembly cars increased by 63.36%. Effective measures can be taken by Chinese government are as follows:

1 WTO's ruling are resulting in the huge profits of assembling cars .Therefore, government should forbid the imports of SKD and DKD assembly cars ,and imported CKD assembly cars must be "body in white".

2 Many developed countries’ governments only purchase cars made by their own individual-funded auto manufacturers, then cars made by Chinese auto manufacturers whose localization rate is less than 60% shouldn’t be included in Chinese government’ procurement directory, which is the most polite way to safeguard our national image and to ensure the basic healthy development of China’s auto industry.

　　Reasons for the big increase in imports of China’s autos and auto parts

1 International auto giants are inclined to speed up the pace to seize Chinese auto marker. They intensified their occupation of Chinese auto market so as to reduce dependence on Europe and U.S. which are under economic downturn. China’s economic recovery is obviously better than other external markets. As a result, consumer confidence started to rebound. Moreover, redesigned models of foreign auto manufacturers also stimulated Chinese consumers’ demands to purchase cars, leading to the good performance of new high-end models. Since September 1, 2008, Chinese government raised consumption tax rate of cars with a displacement of 3.0 to 4.0 liters from 15% to 25%. Coupled with the severe impacts of international financial crisis Chinese relevant agents began to reduce imports of large displacement models and instead increased imports of low-emission cars. However, with the recent recovery of Chinese auto market and shortage of inventories, imports of large displacement car were in a steady growth since the third quarter of 2009.

2 Productivity was fully released in September. Auto output reached more than 1 million in September, at least 90% higher than January and the growth of production capacity increased very fast. In March last year when the world's car market was shrinking, all auto giants were competing for Chinese auto market, the production of broad gauge passenger cars reached 712,000. After that Chinese auto market also began to shrink and there was a sharp drop in imports of parts orders of joint ventures. Besides, a number of Chinese auto manufacturers had to lay off some employees to avoid the marker risk. In mid-December last year, Chinese government has adopted a series of policies to stimulate the car market.

Pushed by favorable policies, demands for new cars rose sharply. However, imports of parts for emergency orders need at least 2 months to arrive, thus car sales in December 2008 and January 2009 are 200,000 higher than the amount of production. In February 2009 many enterprises used up security reserves of imported parts, leading to the big decline of production and also imposed a serious impact on car sales. Until March 2009 when some additional orders of some imported parts arrived, production and sales started to in basic balance.

Meanwhile, huge market demands stimulated Chinese auto manufacturers to increase their production by hiring more workers, using new factories and expanding production capacity so that the normal production capacity could increase by at least 150, 000 units each month. Plus overtime, the maximum effective production capacity in September could reach more than 1 million units. At present the utilization rate of effective production capacity of passenger cars is around 120%, and only China have such a high utilization rate of effective production capacity, indicating hard-working Chinese people can contribute a lot to Chinese economic development.

3 The Measures were abandoned. Adjustment of The Measures would inevitably bring about some changes, but the changes couldn’t affect the overall situation.(Translator: Qinghua Wade)

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