China's membership in the WTO is unlikely to bring about free competition for foreign carmakers who must be flexible and patient to tap the "sleeping dragon," industry experts said Tuesday.
Car sales are set to boom as China tears down tariff walls over six years after entering WTO but it was likely to use administrative barriers to help local auto companies, experts told an Asia auto conference here.
John Evans, director of Hong Kong-based consultancy firm Tractus, said foreign carmakers would still have to grapple with other non-tariff trade barriers and traditional obstacles such as corruption and decision making based on guanxi or relationships.
"China's WTO entry won't immediately cause dramatic decreases in imported vehicle prices because there are 217 different taxes and fees related to auto production and sales," he said.
Eighty percent of tariff reduction was only applicable by 2006 and local government autonomy could deter its WTO implementation, he said.
"It won't open up the industry to free market competition because China is likely to use administrative measures to favour domestic companies."
Under WTO, China will cut tariffs on cars from 44 percent to 51 percent to 25 percent by 2006, phase out import quotas and open up distribution rights by 2005, eliminate local content requirements and ease other restrictions.
Evans predicted most of China's 1,400 manufacturers of vehicles and components would not survive the post-WTO competition and half a million poorly trained workers would lose their jobs.
He said foreign carmakers had to get ready to tap an imminent boom in car sales. Less than one percent of China's city residents owned a car but 32 percent already had plans to buy one over the next five years, he said.
* China plans to cut tariffs on cars that range between 44 percent and 51 percent to 25 percent by 2006.
* By 2005, import quotas will be phased out and distribution rights will be opened up.
* Also that same year, China will eliminate local content requirements and ease other restrictions.
"Investing in China takes time, takes patience and you will end up spending more money in training than you would expect ... but China's auto industry is a sleeping dragon," he said.
"In the next 10 years, China will be a serious player in the automotive industry ... in 2010, you'll find China very competitive."
Han Mei, vice president of the China National Automotive Industry Consulting and Development Corp, said the auto industry was set to grow at an average of nine percent annually until 2010.
"Private purchases of economy cars will be the new growing point and will speed up by 2005," he said, predicting car sales to grow from 605,000 units last year to 1.1 million in 2005 and 2.3 million in 2010.
Han said China would become a supply base for the global car component industry, with exports seen surging from 10 percent now to 30 percent in 2010 and turnover up from US$10.3 billion to US$26.6 billion by 2010.
He cited the WTO impact, industry protection for local firms, an immature market and fragmented industry as key challenges for carmakers.
"Grasping the industry's features and being sustainable and flexible is a key to success," he added.
Jeroen de Wilde, regional logistics director of TNT Logistics Asia, said foreign carmakers must seek alliances with state-owned enterprises to expand in China.
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