China Passenger-Car Sales Rise at Slowest Pace in Six Months

Bloomberg Businessweek, December 9, 2011


Click here to read the article at businessweek.com

China passenger-car sales rose at the slowest pace in six months, as monetary tightening and the removal of government incentives dented demand at Ford Motor Co. and Honda Motor Co.

Wholesale deliveries, including sport-utility vehicles and minivans, gained 0.3 percent to 1.34 million units last month, the China Association of Automobile Manufacturers said today in a statement. That compares with the 0.5 percent median estimate of five analysts surveyed by Bloomberg and is the slowest pace since May, when sales dropped 0.1 percent to 1.04 million cars.

China's vehicle sales have slowed this year from last year's record 32 percent expansion pace as inflation, higher interest rates and the end of a two-year stimulus plan deter purchases. Deliveries for 2011 may climb the least in 13 years, according to the auto industry group, adding to signs China's economy is slowing.

“The market is decelerating and coming down to a more sustainable pattern going forward,” said Bill Russo, a senior adviser at consulting company Booz & Co. in Beijing. Demand is still being affected by consumers pushing forward their purchases to take advantage of government incentives that have since expired and by capital constraints, he said.

CAAM, which has cut its market forecast twice this year, estimates the number of vehicles delivered to Chinese dealerships to rise between 3 percent to 5 percent this year, after surging 32 percent in 2010 on the back of tax breaks and rebates for buyers in rural areas. That would mark the first time the Chinese market would expand at a slower pace than U.S. light-vehicle retail sales, based on CAAM figures stretching back to 1998.

Including buses and trucks, total sales in China fell 2.4 percent to 1.66 million units last month, according to the association. In the first 11 months of the year, they increased 2.6 percent, with passenger-car deliveries up 5.3 percent to 13.1 million units.

Minivans fell 9.5 percent last month in China, leading declines in passenger-car deliveries, according to CAAM numbers. That extends this year's slide to 9.8 percent.

Russo to Speak at European Union Chamber Of Commerce in China Auto-Components Working Group Meeting

December 16, 2011, Shanghai, China

Invitation:

Date: 16^th December, 09:00 – 10:30 a.m.

Venue: European Chamber Shanghai Office: 333 Huai Hai Middle Road, Unit 2204, Shui On Plaza (22nd floor).

The European Chamber is delighted to invite you to 2011’s last Auto-Components Working Group Meeting, which will be held on 16^th of December 2011 from 9:00 – 10:30 a.m. at the European Chamber Shanghai office (see the addresses above).

At the meeting, we will have the pleasure to welcome Mr. Bill Russo, Senior Advisor from booz&co., to speak to members about“Leveraging the Rapidly Emerging Markets to Achieve Global Competitive Advantage”. The centre of gravity for many industries’ global business growth in the 21st century is now in Asia, and China and India have emerged as the most prominent among the rapidly emerging economies. Lured by the promise of these markets, along with the scale economies made possible by this and their respective cost structures, multi-national corporations are shifting their investments and organizational focus to these important markets.  This presentation will suggest strategies aimed at leveraging the China-India demand-side and supply-side opportunities.

Tentative Agenda:

1.     (9:00-9:45) Presentation on “Leveraging the Rapidly Emerging Markets to Achieve Global Competitive Advantage” by Bill Russo, Senior Advisor, from booz&co.

2.     (9:45-10:00) Presentation on “Stakeholder Mapping for the Auto-Components industry in China” by Mike Yung, Assistant to the Working Group, the European Chamber.

3.     (10:00-10:15) Discussion on Lobby Planning

4.     (10:15-10:30) Any Other Business

Please register your attendance with Mr. Mike Yung at myung@europeanchamber.com.cn by Thursday 15^th of December 2011, 12:00 p.m.

Please let us know if you would like to raise a certain topic or add an item to the meeting’s agenda.

---

For any further information about the Shanghai Auto-Components Working Group or the European Chamber in general, please do not hesitate to contact Mr. Onur Yalcintas at 021 6385 2023 ext. 122 or oyalcintas@europeanchamber.com.cn

Leveraging the Rapidly Emerging markets for Global Competitive Advantage

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Russo to Address EU Trade Commission on "China moving up the value chain and the role of technology transfer"

Brussels, Belgium, December 9, 2011

Seminar with China Watchers, Brussels

9 December 2011

Seminar and discussion will address the following questions:

• How do you assess the future competitiveness of European industry in general and in these emerging industries, in particular, and how should Europe position itself? Is there sufficient evidence to remain cautiously optimistic, or are China's policies aiming to make its economy greener a blessing in disguise?
• To what extent is technology transfer to China happening on a non-consensual basis, which endangers our companies’ competitiveness by creating the rise of future Chinese competitors in the same market segment?
• How can European companies design creative solutions to minimize the risk to their intellectual property associated with technology transfers?
• Are global production chain strategies, e.g. by making only parts of the puzzle in China, a sufficient protection against technology transfer? What trends can we see developing in China and the wider Asian region?
• With much manufacturing and assembly already taking place in China, are we not risking a situation where 'innovation on the work floor' will also increasingly shift to China?
• To what extent are EU companies considering partnering with Chinese companies to become more competitive on the Chinese market – but also to become stronger internationally on third markets?
• How should the EU position itself (e.g. via research or education programmes) with a view to better integrating with, and tapping into, this huge innovative market that is in the making?

Advisors:

1. Ms Alicia García-Herrero
2. Mr Jean-Claude Deschamps

Confirmed experts:

1. Mr. Chris Strutt, Senior Vice President Government Affairs, Public Policy and Patient Advocacy, GlaxoSmithKlein
2. Mr Stephan Csoma, Senior Vice President, Umicore
3. Mr Peter Brun, Senior Vice President, Vestas
4. Mr Sandro Zero, Vice President and Export Control Officer, Areva
5. Mr Ulf Pehrsson, Vice President Government & Industry Relations, Ericsson
6. Mr Bill Russo, Senior Advisor, Booz & Company
7. Mr James McGregor, Senior Counselor, APCO
8. Mr Simon Cheetham, Lead Expert China IPR SME Help Desk
9. Mr Thomas Pattloch, Senior Counsel Taylor Wessing, former EU IP Officer Beijing
10. Prof François Godement

China Moving Up the Value Chain and Role of Technology Transfer

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China Pledges Fair Treatment Of Foreign Auto Firms In NEV Program

Inside US-China Trade Newsletter, November 23, 2011

At the Joint Commission on Commerce and Trade (JCCT), China this week offered a number of confirmations and clarifications with respect to forced technology transfer and availability of subsidies that would mean fair treatment of foreign auto firms as they seek to compete for market share and set up production facilities for electric vehicles, according to a fact sheet issued at the conclusion of the Nov. 20-21 meeting in Chengdu, China.


China is projected to manufacture five million of these new energy vehicles by the year 2020. An auto industry source said the statements in the fact sheet — if they are implemented as written — “on the surface” would seem to suggest that “Christmas done come real early this year.”


In the joint fact sheet, China “confirmed that it does not and will not maintain measures that mandate the transfer of technology.” It also “clarified” that “‘mastery of core technology’ does not require technology transfer for NEVs,” according to the fact sheet.

The Chinese further confirmed that “the establishment of brands is a corporate decision and that the Chinese government does not and will not impose any requirements for foreign-invested companies to establish domestic brands in China."

In addition, China pledged that “foreign-invested enterprises are eligible on an equal basis for subsidies or other preferential policies for NEVs with Chinese enterprises, and that these subsidies and preference programs will be implemented in a manner consistent with WTO rules.”


The latter public confirmation may mark an advance over what has been explicitly stated in the past about eligibility for NEV programs, according to Bill Russo, president of the Beijing-based automotive consultancy Synergistics Limited.  “While it was never stated who would be eligible for subsidies, it was never unambiguously stated whether foreign invested joint ventures would be eligible, and this apparently clarifies that they are indeed eligible,” he said in a Nov. 21 email. Russo noted, however, that the second part of the sentence that mentioned general consistency with WTO rules, “leaves room for future adjustments.”


According to another industry source, the test case for Chinese credibility on its JCCT NEV statements will be General Motors’ Chevy Volt, which it can be expected to seek to import into China soon, possibly before the end of 201, even though GM has already agreed to produce a domestic brand NEV, the Baojun, in its joint venture with Shanghai Automotive Industry Company (SAIC).


China also affirmed at the JCCT that the “views of all stakeholders will be considered,” including those of the United States, as it develops “possible future NEV support programs.”


U.S. auto firms in the past complained that China’s National Development and Research Commission (NDRC) has informally been forcing technology transfer by not approving additional production capacity or new plants unless the foreign joint venture partner agrees to establish a domestic brand in the NEV space (Inside US-China Trade, March 16, 2011).


As a result, nearly all major foreign automakers except Ford have already agreed to produce a domestic NEV brand. 

U.S. automakers also had been worried that draft regulations by NDRC and the Ministry of Industry and Information Technology (MIIT) implementing the NEV policy were aiming to force technology transfer by requiring that any NEV joint venture must demonstrate “mastery” of at least one of three key technology areas: electric batteries, motors or control systems. Given the relative advanced state of foreign firms’ technology in these areas compared to that of potential domestic partners, the fear was that such technology would have to be provided by the foreign firm into the NEV JV.

Another JCCT outcome unveiled on Nov. 21 was a Chinese assurance that it will provide “a fair and level playing field for all companies, including U.S. companies, in China’s newly emerging industries.”

Those industries include high-end equipment manufacturing, energy-saving and environmentally-friendly technolo- gies, biotechnologies, new generation information technologies, alternative energy, advanced materials, and NEVs, according to the fact sheet.


According to data provided by U.S. industry, China plans to invest $1.5 trillion in those sectors over the next five years.


Other JCCT outcomes were announced with respect to medical devices, pharmaceuticals, smart grid technologies, standards and conformity assessment, telecommunications goods and services, and travel and tourism, The document also outlines a series of “cooperative activities” the two sides have agreed to pursue under the auspices of the JCCT IPR Working Group, as well as under the JCCT Commercial Law Working Group and with regard to cloud computing and motorcycles. 

China Pledges Fair Treatment Of Foreign Auto Firms In NEV Program

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An Assessment Of The Development Of China’s Automotive Industry On The Tenth Anniversary Of WTO Accession

Auto.Sohu.Com, November 16, 2011

Click below to read the article

in English

in Chinese (中文) : 罗威：入世十年 中国汽车业未来任重道远

by Bill Russo

Since joining the World Trade Organization (WTO) at the end of 2001, the Chinese car market has grown from about 2 million vehicles to over 18 million vehicles sold in 2010, an increase of nearly nine times.  In fact, over the past decade from 2001-2010, the compound annual growth rate of the Chinese car market was an astonishing 34 percent.  As the largest market in the world, China has taken the center stage in the battle for dominance of the 21^st century automotive industry. 

However, automotive companies in China today are finding themselves confronted with a different set of challenges from what they were facing just a few years ago.  From the demand side, Chinese consumers are becoming more selective and are making more diverse and personal choices: making their own individual choices, not just for their family.  Meanwhile, demand growth is increasingly driven by lower-tier (Tier 3 and below) cities more than large and mega cities.  The Chinese government has also released more restrictive regulatory requirements for safety, environmental care and foreign investment.  From the supply side, almost every international player has recognized China as their largest source of future profit and has thereby committed significant investment.  Additionally, Chinese local brands have never been so aggressive in fighting for market share than today.  All these challenges are pushing global as well as local vehicle manufacturers to alter their thinking and adopt new strategies to win in the China auto market.

In addition, there are numerous structural problems in the China automotive industry.  While light vehicle sales stand at historic highs, overcapacity and lack of scale remain major problems.  This is true largely because of the highly fragmented and scattered OEM landscape.  China’s auto industry today includes over 100 registered automotive manufacturers. This creates a significant challenge to the health of the many businesses that struggle to sustain operations in an environment where economic growth is by no means assured.  Additionally, approximately 70% of passenger vehicles sold carry a foreign brand, which makes it very difficult for Chinese domestic brands to generate sufficient volumes or profit margins to remain economically viable.

This fragmentation also makes it very difficult to focus and allocate resources to the development of critical technologies related to safety and fuel economy.  This is an area of particular weakness for Chinese OEMs who have relied on their foreign partners to lead the development of key component technologies. 

The remarkable growth of Chinese car market was created in partnership among international and domestic car manufacturers.  Foreign manufacturers provided funding, technology and managerial expertise to support the development of Chinese car manufacturers and suppliers.  However, Chinese car companies remain dependent on international sources for technology innovation and product development.

The determining factor in whether a car company can compete in the international markets is whether they have the capacity to meet local consumer as well as regulatory requirements.   While Chinese firms have learned very quickly how to assemble cars and develop supply chains, they are very inexperienced at the vehicle development and synthesis process.  An automobile is a complex engineered system requiring advanced technology and know-how in order to test and validate the achievement of benchmark targets in the areas of performance, fuel economy, safety and quality.  It is in this area that Chinese firms are weakest.  Chinese vehicles, while improving rapidly, are still not up to the world-class standards required to compete in the mature markets of the world.

Chinese automotive makers typically lack the knowledge and experience of developing core technologies of important vehicle components and doing sub-systems integration. Overseas car companies started by developing and integrating core component technologies internally and have only recently been seeking external outsourcing partners. World-class vehicle manufacturers retain the critical skills that define their brand identity in order to deliver a unique value proposition.

The capabilities of local Chinese OEMs have come a long way in a short time.  This is, after all, a relatively new industry for China and the Chinese firms will learn quickly as they grow their share of the domestic market.  However, much work needs to be done to gain acceptance of the Chinese consumer of Chinese manufactured goods.  This must be the first priority as it stands to reason that if it is difficult to convince a Chinese consumer, it will be even harder to convince a foreign consumer to accept a “Made in China” car.  The fact is that with the proper attention to quality management discipline and with the transfer of critical know-how in the area of vehicle synthesis and development, it is indeed possible for Chinese firms to compete globally.

Several Chinese companies are attempting to acquire these capabilities  “inorganically” by acquiring the assets of distressed but well-known international manufacturers. Geely’s acquisition of Volvo, and Pangda and Youngman’s bid to acquire Saab are recent examples.  It stands to reason that such an approach could significantly shorten the time frame for going global.  However, such acquisitions are difficult and often unsuccessful. For example, SAIC’s acquisition of Ssangyong ultimately failed because the interests of both parties were not aligned. Those who dare take on such acquisitions are also wise to learn the lessons from others who have tried – and often failed – to use an acquisition to accelerate the process.

It is clear that China’s auto companies aspire to become leading global auto companies.  However, for Chinese brands to successfully compete in the global auto industry they must:

1.    Strengthen their domestic base through consolidation

2.    Determine the Chinese brand value proposition

3.    Build critical vehicle development competencies required to achieve benchmark targets in line with their brand’s Unique Selling Proposition

And China’s policy makers must help by accelerating the consolidation of today’s fragmented auto industry and eliminating the weak brands in order to ensure the survival of the stronger brands.

China’s auto market remains buoyant

The Financial Times, November 15, 2011



Eric Zhou needs a car, and he plans to buy one – despite the global financial crisis.


Mr Zhou, a 36-year-old engineer working in Shanghai, is typical of millions of consumers who are keeping the Chinese auto market relatively buoyant as the Chinese economy is slowing and sectors from property to steel are suffering from tighter credit.


Mr Zhou says he and his wife “didn’t consider the financial crisis” when they decided to buy a car to take their son to school. “In fact, we don’t feel the financial crisis is causing any impact on our lives at all,” he said.


The same cannot be said of China’s total automotive market – the world’s largest – which is slowing, partly due to credit tightening moves by the central government. Sales of Mini commercial vehicle – small vans used largely for business – are down 5 per cent year-on-year in the first 10 months of 2011 and manufacturers are feeling the strain.


The story for passenger cars is very different. They remain resilient even after the withdrawal of tax incentives to buy small cars.


Car sales increased by 6 per cent year-on-year in the first 10 months of the year, and a recent consumer survey showed continuing strong demand for cars, especially at the higher end of the market.


Mercedes-Benz’s sales have risen 36 per cent this year, and General Motors’ sales last month increased 10 per cent year-on-year, although GM had to slash prices on its mini commercial vehicles.


This year’s 6 per cent increase in car sales, however, looks anaemic compared with the past couple of years: passenger car sales rose 53 per cent in 2009 and 33 per cent in 2010.


In the west, such a dramatic decline in sales would be seen as very bad news for the overall economy. But in China, auto market executives, industry analysts and ordinary consumers tell a different story.


“Last year’s market was on steroids, driven by subsidies, but this year the government is trying to wean the market off those drugs,” says Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China.


Early in 2009, Beijing introduced tax incentives for small cars, as part of a broader economic stimulus package that inflated car sales in 2009 and 2010. The tax cuts were withdrawn this year. As a result, the China Association of Automobile Manufacturers (CAAM) recently forecast total vehicle sales would rise by less than 5 per cent this year.


Mr Russo says that is not bad news for the Chinese car market: “I don’t think car sales are signalling that the fundamentals are weak at all. If anything, it is the opposite: 4 or 5 per cent growth coming on top of a blowout year last year is pretty solid,” he says.


Passenger cars, one component of total vehicle sales, could grow even more strongly, by 10 or 11 per cent this year, says Klaus Paur of Synovate, a Shanghai auto consultancy. “The fact that we had two tremendous years of growth has blurred our view of reality. The reality is we still have a growing market, just at a higher level,” he says.


Chinese consumers are much less affected by the pessimism that has beset shoppers in other countries. According to the latest annual survey of Chinese consumers by McKinsey, they are more optimistic than last year: 58 per cent think their income will rise in the next year compared with 39 per cent in 2010.


Shaun Rein, whose firm China Market Research Group interviewed 300 consumers in eight cities recently about their car purchasing plans, says “the economy is not stopping them from buying”.


As Dan Akerson, GM chief executive, said in Shanghai earlier this month: “You can’t have totally unbridled growth in a country evolving as quickly as China.” He predicted 7-10 per cent market growth this year, adding: “I think that’s very healthy.”



China’s auto market remains buoyant - FT.com
http://www.ft.com/intl/cms/s/0/e62cbe30-0f8e-11e1-88cc-00144feabdc0.html#axzz1dqaE48JR

Bill Russo to Conduct Analysts' Roadshow on Week of Nov. 21

Singapore, November 21-22, 2011
Hong Kong, November 23-24, 2011


Over 20 meetings and group discussions with leading institutional investors will occur over a 4-day period.  The briefing topic is:


An Assessment Of Trends And Opportunities In China’s Automotive Industry

Keeping Pace With Rapid Developments In The Battleground For Dominance Of The 21st Century Global Auto Industry