currency (i.e., Renminbi) has
strengthened versus the U.S. Dollar
(see Figure 2). Figure 3 describes
China’s role as a large purchas-er/importer of goods throughout the
world. China will soon be sending
another purchasing mission to
Europe, following in the footsteps of a
delegation that visited the EU a few
months ago and resulted in more than
$15 billion in purchases. France was
not included in the first purchasing
mission as there were some concerns
by the Chinese as to the position that
France was taking relative to a “Free
Tibet” debate. This next visit to the
EU is said to include a serious review
with the French Government and
hopefully significant purchase orders
by the Chinese.
To most of us, China is the world’s
factory for “everyday low price” merchandise. According to the U.S. Census
bureau, the trade deficit with China in
2008 stood at $266.3 billion, with
China imports valued at $337.8 billion
compared with U.S. exports valued at
$71.5 billion. The message is clear:
China dominates the production of
everyday goods. It is virtually impossible to purchase any household item
that does not have China content. It
just seems logical to assume it’s simply
a matter of time before China becomes
an exporter of the most symbolic cultural icon—the automobile.
AUTO INDUSTRY
For four consecutive months in 2009,
China has surpassed the U.S. in total
car sales, most recently posting April
sales of 1.15 million units versus
820,000 vehicles sold in the U.S. market. It seems like all the ingredients
are there for the China’s automotive
industry to expand to the global markets. In fact much of the content in
cars sold in the U.S. and elsewhere
today already does come from China.
Because a significant percentage of the
total cost of a car is in the manufactured components, there has already
been a significant
movement of the
production of supplied parts to
China. A great
many of the components used in cars
today either are or
can quickly be manufactured in China.
This move to China
is mostly driven by
the efficiencies
gained from sourcing in China. So, for
those of us who are
awaiting the arrival
of the Chinese car,
what you may not
realize is how much
Chinese content
may already be in
your current car.
Although there
appears to be a genuine rally in
China’s domestic car sales, China
exported only 61,000 vehicles in the
first quarter of 2009. According to
China statistics, this represents a
decline of 62% from the previous year.
China auto insiders have pointed to
the overall decline in worldwide
demand as the reason, particularly in
such key markets as Russia where protectionist measures have had a direct
impact on vehicles entering the market. But this should not be accepted as
a complete explanation. Unlike when
Japan and Korea entered the global
automotive market, today’s market is
crowded and comprised of market
savvy producers who have already
carved out a solid market position.
It is highly unlikely that the Chinese
will be able to simply show up with
“me too” products and achieve market
acceptance. A more suitable route
would be for them to focus on gaining
market share through inorganic
options such as acquisitions. This
approach would also need to be aug-
Figure 1
mented by the development of unique
and superior products. In fact, the
leading effort in the world to develop
an all-electric car is not based in Japan
or the U.S. but is in China. While most
people think of China as being only a
low cost producer they are in fact the
leaders in developing superior battery
technology for a variety of applications,
including the automobile. If China’s
auto producers could acquire someone
like Chrysler or even parts of GM this
would allow them to move quickly into
the U.S. market and bring with them
their unique technology for an all-electric car. Pursuing a more traditional,
organic growth strategy, including
exports from China, would most likely
prove unsuccessful for the Chinese.
CHEMICALS MARKET
In the chemicals market, China continues to realize significant growth,
especially in the area of pharmaceutical products (see Figure 3). Of
course, the growth in exports has
