Originally created 12/02/05

China's auto market growing fast, but obstacles remain



DETROIT - China's rapidly expanding automotive industry faces so many obstacles it will likely be 10 to 20 years before Chinese automakers can compete globally in vehicle design, manufacturing and sales, according to a report issued Wednesday.

The report is based on interviews with 20 Chinese industry leaders, including manufacturers, government officials and auto dealers. It was prepared by IBM Business Consulting Services and the University of Michigan Transportation Research Institute.

Researchers were surprised to learn that Chinese industry leaders don't believe the Chinese have gained enough technology and expertise from joint partnerships with global companies like General Motors Corp. and Volkswagen AG.

Linda Ban, the automotive leader of the IBM Institute for Business Value, said the Chinese government hoped to get expertise quickly by requiring Chinese auto companies to own more than 50 percent of any joint venture. But that technology transfer hasn't happened, in part because foreign automakers are concerned about intellectual property rights.

"The domestic Chinese still feel the core technology is in the hands of foreign automakers," Ban said.

China also has a long way to go in developing the sales process. The country restricted the number of auto loans in 2003 after a huge number of defaults and needs credit bureaus and solid repossession laws, the report said. China also has cumbersome laws for selling used cars and taxes that can make used cars as expensive as new ones.

Another problem that could restrict the growth of the industry is infrastructure. China has 85,000 gas stations, mostly in urban areas, compared to 170,000 in the United States, the report said.

China produced 2.34 million vehicles last year, up from 220,000 in 1993, and is on track to surpass Germany as the third-largest auto producer in 2007. The U.S. and Japan are the top producers.

China also has huge growth potential. Just 24 of every 1,000 people own a car, compared to 120 globally and 750 in the United States. The report predicted China's auto market could be larger than the U.S. market by 2015. Around 5 million vehicles were sold in China last year, compared to 17 million in the United States.

"There is a lot of uncertainty in the Chinese market," said Bruce Bezlowski, a University of Michigan researcher. "At the same time, there's a real sense of euphoria and excitement when you talk to people about what the future will bring."

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University of Michigan Transportation Research Institute: http://www.umtri.umich.edu