Chinese Cars Will Find A Home In The Middle East

BMI View : While the broad decline in Chinese vehicle exports in 2013 plays out our view on the diminishing attractiveness of China as an export hub, we do see some support for auto exports in the coming years as Chinese carmakers look to overseas markets to boost their flagging domestic sales.

According to the China Automobile Manufacturers Association (CAAM), vehicle exports from China declined 7.5% in 2013, to 977,300 units. From the total, passenger car exports came in at 596,300 units, down 9.8%, and commercial vehicle (CV) exports hit 380,000 units, a decrease of 3.5%.

The decline in exports plays out our view that the attractiveness of China as an export hub has been diminishing over the years. The rising cost of labour coupled with the broad escalation of production costs, have reduced the competitiveness of vehicle exports, resulting in automakers aligning their domestic auto production to more closely match demand in the local market.

Emerging Market Demand Will Remain Strong
Top Ten Markets Of Chinese Vehicle Exports In 2013

Chinese Cars Will Find A Home In The Middle East

BMI View : While the broad decline in Chinese vehicle exports in 2013 plays out our view on the diminishing attractiveness of China as an export hub, we do see some support for auto exports in the coming years as Chinese carmakers look to overseas markets to boost their flagging domestic sales.

According to the China Automobile Manufacturers Association (CAAM), vehicle exports from China declined 7.5% in 2013, to 977,300 units. From the total, passenger car exports came in at 596,300 units, down 9.8%, and commercial vehicle (CV) exports hit 380,000 units, a decrease of 3.5%.

The decline in exports plays out our view that the attractiveness of China as an export hub has been diminishing over the years. The rising cost of labour coupled with the broad escalation of production costs, have reduced the competitiveness of vehicle exports, resulting in automakers aligning their domestic auto production to more closely match demand in the local market.

That said, we do see certain developments as being positive for vehicle exports in the coming years. Chinese carmakers, which have been slowly bleeding domestic market share to international automakers since the end of tax breaks on small cars in 2010, are diversifying into overseas markets for growth. Also, these automakers are setting up more production facilities closer to their target markets, which is partially a cause for the decline in vehicle exports from China.

The accompanying chart highlights the top 10 export markets for Chinese cars. Evidently, the bulk of vehicle exports go to other emerging markets and we see demand remaining strong. Due to affordability concerns among the consumers of these countries, budget marques are generally preferred in these markets, and buyers are less brand conscious. On this front, Chinese automakers, which produce affordable, no-frills cars, are well poised to capitalise.

Emerging Market Demand Will Remain Strong
Top Ten Markets Of Chinese Vehicle Exports In 2013

We see the Middle Eastern region remaining a popular export market for Chinese brands. GAC Motor Co., the passenger vehicle unit of Guangzhou Automobile Group Co., plans to start exporting vehicles to emerging markets in 2014 and the Middle East is one of its target markets. The firm expects to export up to 5,000 vehicles this year.

Furthermore, it is not just Chinese carmakers but also international automakers producing in China, which are keen to export some of their surplus production capacity to overseas markets. Exports from General Motors Company (GM) and its Chinese JVs grew 7.7% in 2013, to 83,145 units. Most of these units went to markets in South East Asia, the Middle East and Africa. While the rising Chinese yuan has been a headwind for the company, GM has been counteracting it by slashing costs in areas such as design and manufacturing.

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