A Newsworthy Week in China
Last week was particularly newsworthy in China, with an important milestone being reached and the release of positive economic data.
The production of the 10 millionth vehicle by China’s auto industry this year represents a key milestone in the country’s development. Many government and industry officials gathered in Changchun, home to First Auto Works, to celebrate the event. Fifty or so years after its rather inauspicious start in that cold northern city, China’s auto industry has climbed to a position of market leadership.
Every month this year, the numbers of vehicles produced and sold in China have exceeded those in the United States, which before 2009 was undisputedly the largest vehicle market in the world. Certainly, the global recession has taken its toll on the U.S. automakers, but China hasn’t taken the lead position merely by default. A “V shaped” rebound in the Chinese economy, combined with reduced taxes on vehicle purchases, has led to an impressive increase in car sales. China is on track to produce 12 million vehicles in 2009, a nearly 25% increase over last year.
China’s auto executives recognize that the Chinese auto industry is in new territory, and that China’s impact on the global auto industry will become increasingly visible. Rather than being a sideshow, China is now center stage. The Chinese view the 1980s and 1990s as a time of importing technology in the auto industry, the last 10 as a time when Chinese carmakers like Chery, Geely and BYD emerged, and the coming years as a time of global expansion.
This next period may be the trickiest of all. According to discussions I’ve had in recent weeks with a number of China auto executives, the imposition by the United States of a 35% duty on tires imported from China took many by surprise. Moreover, the involvement of the United States government in General Motors and Chrysler, and that of the German, French and Italian governments in the sale of Opel, have highlighted just how political the auto industry can be. For this reason, I believe that China will be low-key and proceed very cautiously as its auto industry begins its global expansion.
China’s “V shaped” recovery was the other major story. China’s National Bureau of Statistics announced last week that the Chinese economy grew by 8.9% in the third quarter. In commenting on the numbers, Andy Rothman, Chief China Strategist for CLSA, notes that China’s GDP grew by 7.7% in the first nine months of the year while exports were still weak, illustrating that the Chinese economy is not export-led. Moreover, Andy points out that, for the first time in a year, investment by China’s privately-owned companies is growing faster than investment by state-owned enterprises, an important sign that China’s economic recovery is sustainable and not driven solely by state spending.
The evidence is now overwhelming that China has successfully navigated the global economic crisis and is well positioned to achieve a sustainable rate of growth in the 8 to 9% range in 2010 — quite an achievement for the country and its leaders.