Business Prospects In China And Vietnam For Suvs

The relevant facts and figures for China and Vietnam are tabulated below:

China Vietnam

Economic GNP ($ billion) 2641.6 58.1

Per capita Income (2006) ($) 2110 727

GDP growth rate 11.4 8.1

Tax rate 25% 28%

Interest rates 6.12% 8.25%

Inflation (2007) (%) 4.8 8.3

Social Income Distribution (Gini coeff.) 0.47 0.432

Literacy 90.9 90.3

Min wage / month ($) 65 45

Labour availability Abundant Abundant

International Exchange Rates (1US $ = ) 7.61 Rmb 16119 Dong

Exports (2007) ($ billion) 1200 39.6

Imports (2007) ($ billion) 956 44.4

FDI Inflow ($ million) 69468 2315

Demographics Population (million) 1322 85.3

Population growth rate 0.61% 1%

Proportion Working population 72% 68%

Other Indicators World Competitiveness ranking 34 68

Vietnam

Vietnam is ranked second in the Business Environment Ranking of the Asia -Pac region this year on the back of sweeping changes in the regulatory environment as it enters the WTO and very low rate of vehicle ownership along with rising incomes.

Market: Vietnam reported sales of 80,392 vehicles last year Ð'- a surge of 97 percent over 2006 and with expected sales of 120000 units in 2008. The government has imposed a consumption tax on auto companies to fight inflation by suppressing demand and the import duties are amongst the highest in the region. In order to offset these effects some domestic auto companies have implemented a price cut which does affect profitability.

Competition: Toyota is one of the major players in here with almost 42.6% market share and the other major players here include Honda Motors, KIA Motors and GM Daewoo. Despite the presence of the major players, the market presents a good scope for entry given the rising per capita income and also the fact that majority of cars here are imported as CBUs.

Macro-economic factors: Apart from an attractive market with a booming GDP at 8.6%, low costs of production, untapped resources and low wages backed by healthy literacy rates favour Vietnam. However, Vietnam continues to struggle with inflation rates higher than the real growth rate of GDP causing credit fears. Another important drawback in Vietnam could be the lack of infrastructure (ports, roads) vis-Ð" -vis China, which could increase the cost of exports.

However, the supply side pressures are expected to ease in the near future due to increase in industrial activity and the Vietnamese government has promised to increase infrastructure expenditure in the near future. Also, the government (stable, communist) is expected to move to a more flexible exchange rate policy which shall cause the Dong to depreciate in nominal terms vis-Ð" -vis the USD.

China

China is ranked fourth in the Business Environment Ranking for the auto sector in Asia-Pac due to high growth rates and low penetration of 11 units per 1000 people despite the global political and economic risks.

Market: China auto sector continues to grow at a scorching rate with sales of 8.3mn units in 2007, which is expected to top 10mn units this year. This was bolstered by sales increase of 37% in the passenger car segment alone thanks to 70% rise in the luxury segment and 45% in the compact segment thanks to tax breaks.