China and the new world order
By: Dr Peter Wells, Monday, July 13, 2009, AutomotiveWorld.com
For many years the focus was on China as a market of extraordinary potential for companies from the OECD member countries to exploit. Those with a longer-term view of the future perhaps were concerned at the ‘hollowing out’ of jobs in Europe, North America and other rich economies as production might migrate from these high labour cost locations to the fantastically cheap China. The fear then was of burgeoning imports of low-cost cars into the established markets.
Events of the period since the economic crisis started to unfold with the sub-prime debacle in America in 2007 have shown just how limited this vision of the future was, and just how completely it underestimated the profound change in the world order that has been underway in the automotive industry. The feared surge in imports from China has not yet happened to any substantial degree, but in many regards what has actually happened is rather more significant.
This new world order is visible in several key indicators:
- The market for new cars in China could overtake that in the US in 2009, as China recovers with amazing rapidity from a brief hiatus in growth in late 2008 and as the US continues to spiral downward;
- new vehicle manufacturers are emerging in China that are bypassing the cosy joint ventures established by the old state-owned companies with their western partners, and are usurping the market dominance once held by these entities – BYD Auto and Chery being two prominent examples;
- companies like BYD Auto and others are leading the race to commercialise plug-in hybrids and pure battery electric vehicles, thus reinforcing a low-cost advantage with a technological advantage;
- Chinese companies are increasingly being associated with the purchase of the assets of moribund western companies, thereby accelerating the rate at which they achieve market penetration – the latest of course being the association of BAIC with an offer of €660m for 51% of Opel.
The Chinese government has a strong incentive to promote the drive into alternative technologies. In 2008, China produced 3.725 million bbl/day of petroleum (making it the fifth largest producer in the world, but with consumption double that rate the country imported an average of 4.21 million bbl/day (2007) – a situation that will only get worse with time.
Furthermore, according to the US Census Bureau, in 2008 China already had a trade surplus with the US of US$268bn. With positive trade figures also evident with most of the rest of the OECD member countries, China is awash with liquidity at a time when the world as a whole is bereft. It is a fantastic opportunity, with so many established companies in financial distress, and with so much hard currency to hand, for China to complete a remarkable transformation from Communist state to global economic superpower in about 20 years.
At present, the ultimate shape of that new world order is not readily visible. It may take many years for western consumers to abandon the comfort of their familiar brands. But in the meantime the economic power and the technological initiative will increasingly be in the hands of the Chinese companies and the Chinese government, and ultimately in the hands of the 1.3 billion Chinese people who are intent on claiming their rightful share of the world’s resources and wealth.
Dr Peter Wells is a Reader at Cardiff Business School, where he is a Co-Director of the Centre for Automotive Industry Research and leads the automotive industry research programme within BRASS, also in Cardiff University. Dr Wells is also a director of AutomotiveWorld.com's sister website AWPresenter.com. He can be contacted on wellspe@cardiff.ac.uk.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Published on Monday, July 13, 2009
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