Upswing Of China's Automobile Industry example essay topic

China's Automobile Industry Where is the world's largest untapped market for the auto industry? The answer is China, of course. It is following the same path to success that South Korean automakers took in the 1980's. Now that China has joined the World Trade Organization (WTO), the elimination of trade barriers provides a great opportunity for foreign companies. China is an emerging market, a country making an effort to change and improve its economy with the goal of raising its performance to that of the world's more advanced nations. We " ll begin by analyzing the role of regional economic integration in Asia, the Asian Pacific Economic Cooperation (APEC).

Then we " ll compare and contrast some of the economic development stages of the surrounding countries and the effects of the economic development for global business. We " ll also discuss the benefits of some of the major drivers of globalization in the Asian region. And finally it will be determined why the automobile industry is one of the leading industries that the Chinese government is aiming to develop in the future. Role of Regional Economic Integration What do we mean by regional economic integration? Our textbook, International Business, defines it as "agreements among countries in a geographic region to reduce, and ultimately remove, tariff and non tariff barriers to the free flow of goods, services, and factors of production between each other". (p. 232). There have been few significant attempts at regional economic integration outside of Western Europe and the Americas.

The two most significant groups are the Association of Southeast Asian Nations (ASEAN) and the Asian Pacific Economic Cooperation (APEC). Both have emerged as the beginning of a potential free trade region (Hill, C.W.L., p. 253). APEC was founded in 1990 at the suggestion of Australia. It currently has eighteen member states including the United States, Japan, and China. The eighteen member states account for half of the world's GNP, 40% of world trade, and most of the growth in the world economy (Hill, p. 253). APEC's goal was to increase multilateral cooperation in view of the economic rise of the Pacific nations and the growing interdependence within the region (Hill, p. 253).

The United States supported APEC because it believed that is may be a possible strategy for heading off any moves to create Asian groupings from which the U.S. might be excluded. Economic Development In 2002, the outlook of the APEC economy was reported to be optimistic (People's Daily, October 2002) and said that Asian developing members will continue to grow with strong exports and industrial production in the coming year. China and Vietnam expected to register 7% of the GDP growth in 2002. In a document titled, "The 2002 APEC Economic Outlook", it stated that China's economic condition remained healthy in 2002 and should remain so throughout 2003. APEC contributes that to the rebounding private demand and big boost from the government sector.

Because of China's entry into the WTO it improved its position to induce foreign direct investment (FDI) in China, which would also improve the short-term economic outlook. Following China's entry in the WTO, there have been plenty of business opportunities for foreign companies in the automobile industry. China will reduce its tariff on complete automobiles to an average rate of 25%, and the import tariff on all auto parts to an average rate of 10%. All these reductions are to be completed by January 2006, with a 10% reduction each year starting from the year 2000 (Jebsen Consult, December 2002). Here are just some facts on the booming automobile industry and why the Chinese government aims to develop it: Fact #1: Automobile manufacturers produced 2.3 million vehicles of all types in 2001.

Fact #2: Sales volume increased by 293,000 units, a 14% increase. Fact #3: Production volume rose by 13% from the year 2000 to 2001. Fact #4: The year 2001 experienced the highest growth rate in terms of both production and sales in the past five years. Let's take a look back on the automobile production industry in the United States vs. China in 1995. Below is a graph that shows the U.S. producing some 6.6 million automobiles to China's 240,000 in 1995. But if we look into the future, the U.S. output is not likely to increase much since most of the automobiles made today are used for replacement rather than for expanding the fleet.

China, by contrast, plans to increase production to 3 million people per year by the end of the decade, building a fleet of 22 million automobiles by the year 2010. If China's automobiles reach 1 for every 2 people, as in the U.S. its fleet of 600 million cars will far exceed the 1995 world fleet of 480 million cars. During the 1990's, China has emerged as an economic superpower, boasting the world's second largest economy. It is now challenging not only U.S. economic leadership, but also the earth's environmental limits. Using purchasing power parity to measure output, China's 1995 GNP of just over $3 trillion exceeded Japan's $2.6 trillion and trailed only the U.S. output of $6.7 trillion. If the Chinese economy continues to double every eight years, the pace it has maintained since 1980, it will overtake the United States by 2010, becoming the world's largest economy (Brown, Lester R. & Flavin, Christopher, September / October 1996).

Major Drivers of Globalization There are some major drivers in the Asian region that contribute to the upswing of China's automobile industry. The Chinese economy is growing so rapidly and if it continues to double every eight years, it will overtake the United States economy by the year 2010, making it the world's largest economy. From 1996 to 2000, the Chinese economy has grown ten to fourteen percent per year. As China's 1.2 billion people moves into modern homes, buys cars, refrigerators and TVs, and shifts to a meat-base diet, the entire world will feel the effects (Brown & Flavin). Another major driver is a since China's entry into the WTO it creates a favorable environment for investment and business operation for foreign investors because foreign automobiles and spare parts with low tariffs are allowed to enter the Chinese market. Presently of the world's top 500 automobile assemblers and manufacturers, 51 have set up joint ventures in China (Asian Information Resources Ltd, 2002).

Also, since vehicle use is just beginning to take off in China, it opens a door of great opportunity for China. In other words, since it is China's choice of vehicle transportation systems to make, China can then commit themselves to fuels that are much cleaner than oil, such as natural gas. Natural gas after all is plentiful in several Chinese provinces. China can also look to electric motors, efficient hybrid cars and maybe even hydrogen fuel cell vehicles (Wiesbrod, Dr. Roberta, INFORM, Inc., 1998).

Accordingly, China is an emerging market. It has vast resources and a population of more than a billion people. It has launched satellites into space and has a large army. In 2000, China's output of automobiles added up to 2 million, an increase of 13% from the previous year. 2.1 million automobiles were sold in all, an increase again of almost 14% over 1999. The ratio of sales volume to output was 101%.

Presently though China's penetration rate of automobiles to person is only one auto per thousand people. That is low compared to that in developed countries. So what does all this mean? It means that there is a huge potential in China's automobile market (Asian Information Resources, Ltd).

Bibliography

Asian Information Resources Ltd. (2001, August).
China Automobile Market-2001.
Retrieved March 1, 2003 from the World Wide Web: web catalog / product.
jsp? code = R 300-0094. Brown, Lester R. & Flavin, Christopher (September 1996).
China's Challenge to the U.S. And to the Earth. Retrieved March 2, 2003 from the World Wide Web: http: // .
Word watch. org. Hill, C.W.L. (2000).
International Business: Competing in the Global Marketplace (3rd ed.) [University of Phoenix Special Edition Series]. Burr Ridge, IL: Irwin / McGraw-Hill. Jebsen Consult (December 2002).
China Automobile Market Study. Retrieved March 1, 2003 from the World Wide Web: web Manufacturers' News, Inc.
The Industrial Information Source. China Auto Industry Market Survey (1st ed. ). Retrieved March 1, 2003 from the World Wide Web: web Weis brod, Roberta (June 17, 1998).
China's Transportation Growth Threatens Health, Political Stability and Environment: Switch to Clean Fuels Needed. Retrieved March 2, 2003 from the World Wide Web: web China.