BEIJING — Zhao Xue Bo, an international relations researcher at Beijing Broadcasting Institute, a national university, has been saving money for some time to buy a new car.
With a job that secures him an annual salary of about 36,000 yuan (roughly 576,000 yen), almost twice the average annual income of a wage-earner in the capital, the 37-year-old Zhao said he hopes to buy a Japanese brand because he believes they have high quality and are fuel efficient.
“But they are still very expensive,” said Zhao, who already owns an apartment near the university. He said he would be willing to buy a car for a little more than 100,000 yuan, or 1.6 million yen. “I’m waiting for the right kind of car with an affordable price to be released.”
Although cars are still essentially a luxury for most Chinese, it may not be long before Zhao can fulfill his desire to have his own set of wheels.
Aware that the Chinese market has thousands of potential customers like Zhao, Japanese automakers are zeroing in on China, where the door to all-out competition has just opened.
Japanese automakers are not only increasing their lineups to be shipped from Japan, they are opting for local production to meet an expected boost in demand and to expand their presence in the market.
Such maneuvers may eventually lower car prices in China and provide customers with a wider variety of vehicles. But producers will also face challenges, including environmental issues that Japan is no stranger to.
Amid China’s high economic growth in recent years, the nation has been strengthening its car market partly by welcoming foreign manufacturers.
Last year, the government set an annual target that between 3.1 million and 3.3 million cars, trucks, and buses will be sold domestically by 2005. This includes between 1.1 million and 1.2 million cars. These figures would mark a significant leap from 2001, when 2.36 million cars, trucks and buses were sold, including 720,000 cars.
Compared with the roughly 4.28 million cars sold in Japan and 8.42 million sold in the United States in 2001, the scale of the Chinese market is still small. But automakers are attracted by the market’s energetic growth.
Among the commitments China has made with its entry to the World Trade Organization is to cut gradually its tariff on imported automobiles, from the current level of between 70 percent and 80 percent to 25 percent by July 2006.
In addition, import quotas on cars — $6 billion for this year — will be increased by 15 percent each year, and will be completely eliminated by 2005.
Since January, the tariff has been trimmed to 43.8 percent for cars with engine displacements below 3,000cc.
The cut has resulted in lower imported car prices. In May alone, 8,493 Japanese cars were shipped to China, compared with 5,528 in the same month of 2001.
China has pledged to cut its tariffs on knockdown components, which are sent to plants for assembly, from an average of 28 percent to 10 percent by July 2006. And within two years, automakers will be freed from the restrictions on models they can produce locally.
Taking advantage of these deregulations, Japanese automakers are looking to increase their model lineups by exporting luxury cars and specialty cars whose demand will be limited, while using their local assembly plants to make cars to meet the major market demand, manufacturers said.
Honda Motor Co., one of the first Japanese automakers to launch local production, began assembling its 2.3-liter Accord luxury sedan at Guangzhou Honda Automobile Co. in March 1999. It sold 51,000 units in 2001 alone.
Honda began manufacturing its 2.3-liter Odyssey minivan in April. Both the Accord and Odyssey are priced at 289,000 yuan, or more than 4.7 million yen, but production is in full swing, according to Koji Kadowaki, president of Guangzhou Honda. The firm plans to manufacture 45,000 Accords and 14,000 Odysseys this year.
Other popular luxury sedans include the Passat made by German automaker Volkswagen AG and the Buick GL produced by General Motors Corp. of the U.S. Both are as expensive as the Honda models and are assembled in China by joint ventures.
In past decades, cars were bought by government authorities and corporations and used for chauffeuring officials and executives around.
In recent years, however, luxury cars are being purchased by prosperous individuals, Kadowaki said.
While the market will be led for the time being by the limited few who can afford such luxury cars, the expanding middle class in major coastal cities will eventually boost demand for smaller, more affordable cars, he said.
“It’s almost similar to the dawn of the ‘my-car’ boom Japan experienced after the (1964) Tokyo Olympics,” Kadowaki said, noting that Japan’s car culture was born amid the high economic growth and personal income surge in the late 1960s, led initially by purchases of pricey vehicles, followed by affordable cars for the masses.
“But cars are better equipped today, and so it’s going to be high-standard competition here,” he said.
Honda said Wednesday it will begin producing a compact car at Guangzhou Honda and marketing it during the next business year year.
The joint venture’s yearly production capacity is being extended from 70,000 units to 120,000 by the end of December.
Honda and Suzuki Motor Corp. are among the Japanese automakers that began local production at joint ventures with Chinese manufacturers in the late 1990s.
Their market shares — Honda has 7.2 percent and Suzuki 6.9 percent — are far smaller than those of their Western competitors, including Volkswagen, which has been manufacturing at joint ventures since 1985 and with 50.7 percent holds the largest share.
Honda and Suzuki are ahead of their Japanese rivals in China. Competition, however, is expected to intensify, as other rivals, including Japan’s top automaker, Toyota Motor Corp., begins local production.
“I welcome the competition as long as it’s fair,” Kadowaki said. “It will motivate us to do even better.”
Minako Mori, an economist at the Japan Center for Economic Research, said the move toward local production in China is understandable, as most Japanese automakers tend to produce vehicles within their target markets.
However, things may not always go so smoothly in China, she said, noting that local strategies may have to change depending on the whims of the national or local governments, which have influence over Chinese participants in joint ventures.
In addition, the nearly 120 Chinese automakers are in the middle of an industry realignment that could force changes in joint ventures involving Japanese firms. They are struggling to survive international competition as foreign manufacturers sell higher quality products, she said.
At the Beijing Motor Show in June, Toyota unveiled a prototype of a 1.5-liter sedan, the first sporting the company’s logo to be manufactured in China. Production is to start in October.
The model, to be assembled at Tianjin Toyota Motor Co., is equipped with Toyota’s latest safety and low emission technologies, with the package designed for the Chinese market, the firm said.
“The economic car segment, where this car fits in, is the rising segment in the Chinese market,” Akio Toyoda, managing director at Toyota and head of the firm’s Chinese business, told a news conference.
“We’re confident that we will be able to contribute to China’s motorization with this car,” said Toyoda, who is a direct descendant of the firm’s founder, Kiichiro Toyoda. Toyota plans to produce 30,000 of the cars annually.
Tianjin Automotive Xial Corp., Toyota’s joint venture partner at Tianjin Toyota, will reportedly become a subsidiary of First Automobile Group, one of China’s major automakers.
While Toyota’s October rollout is still on schedule, the change in the situation of its partner is considered advantageous for its future plans.
Toyota President Fujio Cho recently said the firm will begin discussing the details of future projects with its new partner. “I think there are many ways to do business (with First Automobile Group), but we will not rush into things,” he said.
Nissan Motor Co. is meanwhile in discussions with Dongfeng Group, a major Chinese automaker group, looking to jointly manufacture cars. Nissan said earlier that it expects to reach an agreement by the end of the year.
“China is one of the most important prospects for Nissan,” the firm’s president, Carlos Ghosn, said at the Beijing Motor Show.
Ghosn also announced that Nissan will increase the lineup of cars to be assembled by its local partners by adding the Bluebird flagship model and Paladin sport utility vehicle.
Mitsubishi Motors Corp. and Mazda Motor Corp. are also scheduled to manufacture vehicles through Chinese local operations.
But a major challenge in China for Japanese carmakers will be establishing and increasing dealerships and marketing channels, said Yasuo Tsuchiya, a veteran analyst at Mitsubishi Research Institute.
Honda, Toyota and Mazda are among the firms that have begun addressing the issue, but Tsuchiya said China still lacks the infrastructure, including sales networks, necessary to sell cars. How to boost brand recognition is another hurdle, he added.
Future customers are meanwhile waiting to reap the benefits of the intensifying competition.
A snap survey of 36 college students at Beijing Broadcasting Institute showed all of them are considering buying cars when they become older — and richer. Many hope to buy one before they reach 30.
“I think cars will enrich the lives of Chinese people,” said Yu Peng Yuan, 21, who favors BMW but also likes Nissan and Honda.
“I would love to own a car, because I would be able to go anywhere with my friends freely,” another 21-year-old student said.
Chen Lei, 20, welcomed the local production efforts by Japanese carmakers as she believes they will allow China to obtain more technology.
But some voiced concern over the lack of parking spaces and the heavy traffic in big cities. Air pollution and a crude oil shortage may become acute if more Chinese buy cars, they said.
Kadowaki of Guangzhou Honda agreed. “The problems of the environment and lack of fuel that China faces will also affect Japan, since we are so close (geographically),” he said. “Although it’s up to the Chinese government to deal with such issues, we will also have to keep them in mind.”