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Despite Curbs, China Remains Auto Market of Choice

Despite Curbs, China Remains Auto Market of Choice

By Jeff Youngs, February 26, 2012
The Chinese auto market, which has provided reliable growth and profits for many western auto makers as their traditional markets have experienced economic challenges over the past few years, is showing signs of cooling off. Most forecasts call for sales to grow 8-10% in 2012-substantial growth for the largest market in the world, but still slower than the heady days when China's vehicle sales could jump 25-50% in a single year.

Slower sales and more restrictions on foreign brands by the Chinese government tend to favor indigenous automakers in China. Regardless, many of the largest investments in the industry have come from foreign companies that long have been established players in the Chinese market, including Volkswagen, General Motors, Toyota and Ford.

This could mean that auto brands without production operations in China- like Chrysler, Renault, Subaru, Jaguar and Land Rover- could find themselves on the outside looking in more than ever before.

China overtook the United States as the world's most prolific auto market in 2009, with Chinese consumers greatly encouraged by government financial incentives to purchase new vehicles. Now, with the growth pace of the entire Chinese economy leveling off a bit, auto manufacturers won't be able to depend on the Chinese boom nearly as much as the recent past.

Meanwhile, the government is reordering incentives for building factories in China and will be less inclined to approve new plants for foreign automakers, which may hurt their brands. "The message is that you're not welcome here anymore; we have enough guests," John Zeng, Shanghai-based director of Asian forecasting at LMC Automotive, told Automotive News Europe.

And yet, China remains the most attractive new-vehicle market in the world because of its combination of a largely untapped market, economic vibrancy, its level of infrastructure development, and a continued relative openness to foreign investment. By some of these criteria, other leading emerging markets like India and Indonesia, for example, may not be quite as attractive to western automakers.

After a decade of strong growth, jump-started by China's entry into the WTO in 2001, a moderation in growth is not to be unexpected. Despite the challenges that China currently faces, it can be expected to remain the growth engine of the global auto industry for years to come.

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