Zhang Xiaoyu:The auto industry should focus

　　September 3, 2010, China Automotive Industry Development Forum entitled the reputation of “Automotive Industry Davos” held in Tianjin Binhai New Area.

　　Focus on the annual theme of he restructuring and upgrade of China automobile industry, the senior leadership from government, industry and corporations will start in-depth discussion. More than 600 government officials, industry leaders, business leaders and scholars have participated in this forum. On the spot, Zhang Xiao, vice president of China Machinery Industry Federation made the speech objectives, priorities and measures of the upgrading of China auto industry. The following is the record of the lecture.

　　Distinguished leaders, seniors of the auto industry, distinguished CEOs, friends from foreign companies and the Medias, very pleased to participate in this meeting!

　　It is the sixth time for me to stand here and discuss the development of the auto industry. I still remember at the first time I said that a sustainable industry needs a platform to lead and push its sustainable development. Now six years have passed, I feel our task half finished.

　　The first time at this forum to study the Eleventh Five Year Plan, we faced a problem, as it mentioned above by Director Chen Bin, the excess capacity. I think the overcapacity in the automobile industry can be only solved by market development.

　　Unfortunately, in 2006 the auto industry was included in overcapacity list by the State Council. At that time I thought the auto industry was put on three hats: scattered, excess capacity and no capacity for independent innovation. I called on the whole sector to throw these hats away during three to five years. Now seems we are already there. This year, the documents of the central government explicitly mentioned the strong development momentum of the automobile industry, the excess capacity has been no longer heard, neither scattered nor no capacity for independent innovation. In 2008 and still here, when all were discuss the sustainable development of the automotive industry, I talked finally that, since winter has come, spring will definitely not be far off. In 2009 driven by a series of policies of the central government, especially in expanding domestic demand and stimulating consumption, driven by a series of policies, the auto industry first submitted a qualified answer to the Central government. Premier stressed than confidence is more important than gold in difficult times, however, in the automotive industry the confidence has been transformed into gold. Looking back over the past decade and looking forward to the next decade, the main topic of my speech today is: the next decade China must turn to a strong automaker. The way is so long within such limited time.

　　My topic today is objectives, priorities and measures. Now we are facing strategic opportunities as well as the transform of the economic growth. Besides, China is trying to become a strong automaker from a large producer. Here I will talk about my simple analysis.

　　Ten years’ rapid and healthy development of the new century automobile industry has passed. The fast speed is the highlight in this period. Over the past decade, we have increased production from two million to 16 million this year; an increase of more than three times and the output value of the automobile industry have grown from over three hundred billion to last year’s three trillion, which is expected to exceed four trillion this year, more than tenfold. We have basically established the position in China national economy and the status of China's auto industry in the worldwide. In the past decade, the cars have been pouring into the common families. Last year, the central government made another decision to encourage the cars to the countryside, which was of great significance and far-reaching. Our exports have also increased. In 2005, our exports exceeded the imports. So, by that time we could say, one of the most worrying industries has become one of the most exciting ones during five years

　　Our market structure has undergone great changes. Due to further opening up of capital markets, the automotive industry has achieved scale-investments and the diversification of capital structure. Referring to the overall capital structure of automotive industry, at the end of last year the total amount of fixed assets reached more than 1.5 trillion, roughly one-third of state-owned and state-holding, private and other forms one-third as well as the foreign capitals the last one-third.

　　In this case, these investments come from the opening up of capital markets. Fourth, over the past decade, our independent innovation has gradually become the mainstream. in the commercial vehicle segment, our independent brands have occupied 85% of the market share, an absolute advantage. We sedans have drawn great attention and also the most blamed field. In the past decade, the share of independent brands has increased from 3% to nearly 30% last year.

　　The next decade will be the transformation and upgrading of China’s automobile industry, highlighting the change of China from a manufacturing power to a strong automaker. To achieve the goal, first we need to keep pace with the growth of GDP. In this regard, general secretary of the congress in his political report mentioned three sentences; one is to basically accomplish industrialization and the integration of industry and information technology. Second, we need to rejuvenate the equipment manufacturing industry. Third, the automotive industry is the backbone or so called the pillar enterprise of equipment manufacturing enterprises, which of course needs to grow stronger.

　　Second, we should synchronize with expanding domestic demand stimulating consumption, provide people with convenience. The last sentence of the Seventeenth report is to fight for a better life for the people life. Not long ago, General Secretary talked to the members of the Academy of Engineering and Sciences academicians, to make people eat at more ease, live more comfortable, and travel more convenient by scientific and technological progress. Automotive industry must be in accordance with the objectives.

　　Third, we need to push the industry by innovation. Equipment manufacturing and information industries are related to national competitiveness. The whole industry has a responsibility to grasp the core technology and go into the ranks of advanced countries.

　　Fourth, the same time for realizing the goals to be a country with rich human resources and talents proposed by the central government, we will also persist in being a great power in the million capacity-industry. Rather than merely "huge", we are going to be "great". To realize such development goal in ten years, we have made sold basis for well and fast development in accordance with the requirement in the plan for adjustment and promotion issued by the State Council. In the future three years, we will focus on the following adjustment: to enlarge the market in the villages and to expand the overseas market, so as to adjust the market structure. In the first half of this year, the total export volume of our automobiles increased 50% compared with that of last years at the corresponding period, which shows good growth. However the central government required our export volume to reach 10% of the total sales volume. Secondly, to realize the adjustment of technique structure, at least 40% of our passenger cars and 30% of our cars shall adopt our own innovation and own brand. The passenger cars have reached such goal last year. However it is the pity that the cars fail to reach such goal this year, and up till July this year. The market share of cars of our own brand has dropped back to 20%. To realize adjustment of product structure, energy saving and emission of our automobiles shall be done in steps and following plans. The entire meaning in the state development plan of medium to long-term is to encourage automobiles with low energy consumption and with new energy, and the production of automobiles with new energy must reach certain capacity. The three-year plan mentioned the production capacity of 500,000 electric cars and that the automobiles with new energy account for 5% of total production capacity in the same year. It is a more difficult goal to reach. If we fail to realize the goal in three years, then we will realize it in five years, to realize the overall objective of ten years.

　　Fifth, we should realize the adjustment of organizational structure. We have two to three enterprises with production capacity of 2 million automobiles. From the status of the first half of this year, the goal is going to be realized. We have four to five enterprises with production capacity of 1 million automobiles, and the market share of the top ten enterprises must account for 90%. We will make further efforts, and it is likely that the goal of adjusting the whole structure will be realized next years, encouraged by the state policy of acquisition and restructuring. This is only the three-year adjustment plan proposed by the State Council under special circumstance. From such overall layout, in the future ten years we will still make further optimization of market structure, technique structure, product structure and our organizational structure based upon the current conditions.

　　Sixth, in respect of measures, generally speaking, there are four aspects: the government shall continue with positive policy to simulate industry development. Mr. Lu Xi just talked about their basic ideas. The background of the policy in 1994 is the adjustment of national economy and challenge of WTO. By contrast, the new policy in 2004 was proposed for further and faster development of automobile industry. Under the new situation, as what Mr. Lu Xi just mentioned, the new industry policy was adjusted under new circumstance and the overall objective is to be an industry leader in the world through ten years' efforts. Industry development shall insist on the overall concept and strategy. Not only our product structure, market share and export, but also our own branch and IP, as well as our own capital, must play the leading role. Fourthly, the scientific research institution shall make contributions to the basic technology and key technology.

　　Seventh, to well implement the Twelfth Five-year Plan, we must carefully learn lesson from our past ten years and make plan for our future ten years with confidence, under which situation, we shall make well plan of our future fives. In the past ten years, we attended the Tenth and Eleventh Five-year plan. At that time, there were still some atmospheres of planned economy. In 2000, when our industry capacity is 2 million, we thought to be 3.8 million in 2005 would be a huge development. However the goal of such plan was realized three years in advance. In 2002, our capacity exceeded 3.5 millions. In 2005, when our capacity reached 5 million, the government authority organized discussion and people make a goal that in 2005 our capacity must reach over 8 million. However, there is not only occasion but also repetition for history. Fain, we realized such goal two years in advance in 2007. When making the Eleventh Five-year Plan the relevant authority used to make surveys and thought our capacity would exceed 12 million in 2010. As the requirement was 8 million, (1200-800)/800, based on calculation, our capacity was only 50%. In 2006, the State Council gains classify automobile industry into the industry of surplus production. In 2007 when the automobile industry became the first industry for adjustment and promotion among the top ten industries, we did not talk about surplus; rather, by expanding the domestic requirement and consumption, we ensured the growth of automobile industry in special circumstance. The annual growth rate of 22% was maintained in the past ten years. Therefore I think under new market environment, our plan should be "to be great" from just "huge". We should switch our focus from the past analysis on quantity to the promotion of quality. The market is decided by both China and international economic and social environment. However, whether we can be strong is decided by ourselves.

　　Outstanding structure adjustment and promotion of competition edge will be the centre of the centre of our future ten-year and five-year plan, as well as the double tasks for realize the pattern of grow of central economy and structure adjustment. We will definitely be the industry leader around 2020 through independent innovation. At the same time, the cooperative companies between foreign countries and China will also be further developed. Thank you.

　　(Translator: Yalong/Jessie)

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