Automobile Industry in China and India

Table of Contents

Introduction 3

1 The Nature of the Automobile Market 4

1.1 China: 4

1.2 India: 5

2 The Country Situation in India and China 7

2.1 China: 7

2.2 India: 8

3 The Type of FDI to Further Minimise Risks 10

4 Conclusion and Recommendations. 10

5 Bibliography 13

6 Appendices 17

6.1 List of Tables: 17

6.2 List of Figures: 22

List of Tables

Table 1: Comparison of Key Economic Indicators in China and India 17

Table 2: China - Top 10 Manufacturers’' Sales Rank 17

Table 3: India - Turnover of Automobile Manufacturers 17

Table 4: India - Automobile Production (2001-07) 18

Table 5: India - Automobile Domestic Sales (2001-07) 19

Table 6: India - Automobile Export (2001-07) 20

Table 7 - FDI Inflow, by regions and selected countries (1994-2005) 21

List of Figures

Figure 1: China's growth surpasses that of India 22

Figure 2: China -YTD April Sales by Manufacturer 22

Figure 3: There will soon be more cars in India & China than the US 23

Figure 4: India - Domestic Market Share in 2006-07 23

Introduction

The automobile industry in China and India increasingly showing rising importance in the global scale. Thus, both are gradually viewed as a serious competitor in the global automobile industry (Fairclough and White 2007). This report looks in depth in the automobile industry of China and India to try to come to a conclusion and recommended investment in the automobile industry.

The report looks at the nature of the automobile industry in both countries. This includes, market size, competitors and demand. Then we review the countries’ situation to review FDI policies, infrastructure, and risks. This is followed by recommended FDI strategy for further minimizing risks and comparison of China and India to recommend specific location of investment.

1 The Nature of the Automobile Market

1.1 China:

In 2006 the Chinese passenger car production exceeded this of the U.S. for the first time, churning out 5.2 million cars compare with 4.4 million in the U.S. Motor vehicle export also showed a significant rise as it doubled to 340,000 units in 2006 compare to 2005 (Simon 2007), (Ostroff 2007), (Automotive Resources Asia 2006). “During the first eight months of 2006 China's automobile production and sales both increased by some 25 percent over the same period of last year” (CHINA.ORG.CN 2006). Forecasts predict that output will continue to rise about 10% to 15% annually making China the world's leading maker of autos by 2011(Ostroff 2007).

China has an enormous market size due to its population of 1.3 billion (Table 1). In addition, China’s GDP was $2.2 trillion in 2005, placing it at fourth position in the world (Kwan 2006). In 2005, per capita GDP in China stood at $1,703 ranking china at number 81st among the 177 nations according to “Human Development Index (HDI)” (Table 1), which combines per capita GDP (in Purchasing Power Parity terms) with other factors such as life expectancy and education levels. In addition, China has witnessed a remarkable economic growth since 1979 which stands at an average of 9.7 per cent (Figure 1).

Researches show that Chinese consumer’s purchasing power has risen to $5500, which has historically been the level of car consumption in other markets (Chen 2005, 182). Guang and Wei (2003) stated that “China’s rapid economic growth provides a stable market and plenty of scope for rapid growth of China’s automobile industry”. The cancellation of many taxes and fees involved in vehicle trade in 2002 led in term for the increase in purchasing power of consumers. This provides