Automobile Industry In China And India

Table of Contents

Introduction 3

1 The Nature of the Automobile Market 4

1.1 China: 4

1.2 India: 5

2 The Country Situation in India and China 7

2.1 China: 7

2.2 India: 8

3 The Type of FDI to Further Minimise Risks 10

4 Conclusion and Recommendations. 10

5 Bibliography 13

6 Appendices 17

6.1 List of Tables: 17

6.2 List of Figures: 22

List of Tables

Table 1: Comparison of Key Economic Indicators in China and India 17

Table 2: China - Top 10 Manufacturers'' Sales Rank 17

Table 3: India - Turnover of Automobile Manufacturers 17

Table 4: India - Automobile Production (2001-07) 18

Table 5: India - Automobile Domestic Sales (2001-07) 19

Table 6: India - Automobile Export (2001-07) 20

Table 7 - FDI Inflow, by regions and selected countries (1994-2005) 21

List of Figures

Figure 1: China's growth surpasses that of India 22

Figure 2: China -YTD April Sales by Manufacturer 22

Figure 3: There will soon be more cars in India & China than the US 23

Figure 4: India - Domestic Market Share in 2006-07 23

Introduction

The automobile industry in China and India increasingly showing rising importance in the global scale. Thus, both are gradually viewed as a serious competitor in the global automobile industry (Fairclough and White 2007). This report looks in depth in the automobile industry of China and India to try to come to a conclusion and recommended investment in the automobile industry.

The report looks at the nature of the automobile industry in both countries. This includes, market size, competitors and demand. Then we review the countries' situation to review FDI policies, infrastructure, and risks. This is followed by recommended FDI strategy for further minimizing risks and comparison of China and India to recommend specific location of investment.

1 The Nature of the Automobile Market

1.1 China:

In 2006 the Chinese passenger car production exceeded this of the U.S. for the first time, churning out 5.2 million cars compare with 4.4 million in the U.S. Motor vehicle export also showed a significant rise as it doubled to 340,000 units in 2006 compare to 2005 (Simon 2007), (Ostroff 2007), (Automotive Resources Asia 2006). "During the first eight months of 2006 China's automobile production and sales both increased by some 25 percent over the same period of last year" (CHINA.ORG.CN 2006). Forecasts predict that output will continue to rise about 10% to 15% annually making China the world's leading maker of autos by 2011(Ostroff 2007).

China has an enormous market size due to its population of 1.3 billion (Table 1). In addition, China's GDP was $2.2 trillion in 2005, placing it at fourth position in the world (Kwan 2006). In 2005, per capita GDP in China stood at $1,703 ranking china at number 81st among the 177 nations according to "Human Development Index (HDI)" (Table 1), which combines per capita GDP (in Purchasing Power Parity terms) with other factors such as life expectancy and education levels. In addition, China has witnessed a remarkable economic growth since 1979 which stands at an average of 9.7 per cent (Figure 1).

Researches show that Chinese consumer's purchasing power has risen to $5500, which has historically been the level of car consumption in other markets (Chen 2005, 182). Guang and Wei (2003) stated that "China's rapid economic growth provides a stable market and plenty of scope for rapid growth of China's automobile industry". The cancellation of many taxes and fees involved in vehicle trade in 2002 led in term for the increase in purchasing power of consumers. This provides enormous market potential for passenger car manufacturers in China (Guang and Wei 2003).

The Chinese automobile industry has more than 100 makers. However, only about 20 manufacture in relatively significant magnitude. This in term led to intense competition which affected the average car prices. In recent years prices have fallen about 7 per cent annually, and in the first quarter of 2007, they dived a further 5 per cent (Fairclough and White 2007). The top 10 manufacturers are: SGM; SVW; Chery; FAW-VW; Beijing Hyundai; Guangzhou Honda; Tianjin Toyota; FAW-TAIC; Geely; and Dongfeng Ltd (Table 2, Figure 2). These top manufacturers' total sale accounts for approximately 83 per cent of the market share (CHINA.ORG.CN 2006), (Norcliffe 2006, 2).

The reduction in prices of automobiles effectively promoted and stimulated the demand for vehicles. This increased the number of consumers and triggered a sharp growth in sales (Guang and Wei 2003). The Chinese auto demand is expected to skyrocket in 2020. It is estimated that demand is expected to reach approximately 20 million units by then (Peoples Daily 2004). Schifferes (2007) stated that predictions are indicating that in the coming years there will be more cars in China than in the U.S. (Figure 3).

1.2 India:

In 2005, India had a population of 1.1 billion. While growth rate has been falling in China, in India it remained high at 1.6 per cent (Table 1). The UN predicts that in 2030, Indian population will surpass China's population. However, GDP in India remains at $800 billion compares to $2.2 trillion in China (Kwan 2006). In 2005 Indian per capita GDP stood at $723 compared to $1,703 in China. Furthermore, when looking at the HDI, India falls behind China, ranking 126th in the world (Table 2).

Madslien (2007) stated that the continuous rise of India's