By: Rhoda Miel
May 17, 2012
SHANGHAI (May 17, 3:35 p.m. ET) — To understand the rate of economic growth China is experiencing, John Zeng looks to the United States’ past.
Between 1880 and 1970, the U.S. went through an economic surge that saw it from the days of the pioneers to urbanization to a complete modernization that spread from large cities to small rural towns of the Midwest.
China today sits at the same tipping point as the U.S. in 1900, said Zeng director of Asia Pacific forecasting for analyst group LMC Automotive — with half of its population in cities, with access to everything modern life offers, and half in rural areas. The U.S. took the next six decades to modernize everywhere.
“China, within 20 years, will do what it took the U.S. 60 years to do,” he said during Plastics News’ China Plastics in Automotive Conference April 17 in Shanghai.
China produced more than 18 million cars in 2011, and while demand may have cooled at the start of 2012, forecasters still expect the country’s auto market will hit 30 million cars by the end of this decade.
That supercharged growth will continue feeding the demand for new car production in China, but central and provincial governments will also struggle to control traffic congestion and rising demand for energy.
Those realities, in turn, will force the auto industry in China to embrace new technologies as it creates the future car for China, with turbo chargers to get more miles out of gasoline-powered engines as well as a need for engines that run on alternate fuels.
Each of those vehicles will require lighter weight materials to meet expectations from both the government and consumers to get more performance out of engines, but also must embrace design and ergonomic cues the Chinese consumer wants.
A young buyer selecting a first car in China is not the same as a young person in California looking to differentiate his tastes from those of his parents, noted Klaus Paur, the Shanghai-based global head of automotive for consulting group Ipsos.
“The young consumers’ buying behaviors are a blend of traditional values and new,” he said. “They want the acceptance of their family and friends. They want to fit into their social group.”
There are some key design cues that automakers and suppliers are recognizing, Paur said. Chinese consumers are drawn more to large headlights and a large chrome-plated front grille. Likewise, chrome and metallic-highlighted interior trim is preferred over wood trim, which is considered “stodgy.”
The new buyers in China are open to multiple brands, especially international brands, he said. The typical consumer will consider four or five brands, said Jim Press, president of international operations for car dealership group McLarty Automotive Partners.
More than 80 percent of car buyers in China are buying their first car, Zeng said. That compares to 12 percent of car buyers in Germany and 10 percent in Japan.
The central government has set targets for the future vehicles, including a requirement that 25 percent of the vehicles sold by 2018 be electric vehicles, although that target may be difficult to hit, he said. It is also promoting the use of methanol as an alternative fuel, with trial developments in three cities now.
Much of the growth of China’s domestic car market so far has been driven by the key cities of Shanghai, Beijing and Guangzhou. As development and modernization moves beyond those cities, demand will only expand.
There are 627 cities in China classified as Tier 2 or Tier 3 — with populations ranging from 500,000 to 2 million, Press said. Many of those cities do not even have an auto dealership yet, but have consumers already anxious to buy their first car.
China’s auto industry is just beginning its long growth in those cities, with 8 percent growth this year, said Shi Jianhua, vice secretary general of the China Association of Automobile Manufacturers.
“And then there are the Tier 4 and Tier 5 cities,” said Jack Cheng, general manager of GAC Fiat Automobiles Co. Ltd., which is building a new plant in Changsha to makes Fiat cars. “Those guys are hungry.”