China's car industry looks a sure bet to be a winner in the Year of the Horse.
Growth rates may not quite match those of 2013, whose 16 percent jump in sales surprised most observers, but total volumes should still rise by around 10 percent to a whisker under 20 million units.
In the process, it will widen the gap on the world's second-largest market, that of the US, to around four million vehicles 每 a gap that will grow inexorably. Moreover, while the US will finally recover to its pre-global financial crisis sales level, China's total will be more than three times that of 2008 每 a tribute to the extraordinary advance its auto industry has made in a period while most of the rest world 每 and the entire developed world 每 has been stagnating.
Last year's growth helped virtually every major car maker in China achieve record sales. The standout performance was Ford's, with a more than 50 percent rise in sales to 935,000 units, as it launched a slew of new models, including popular SUVs. But Japan's big three car makers 每 Toyota, Honda and Nissan 每 also had a good year, recovering from a sharp drop in sales during 2012.
The leaders, however, remain GM, with total vehicle sales of 3.16 million units last year, up 11.4 percent, and its long-time rival, Volkswagen, which for the first time in nearly a decade reclaimed its crown as China's top auto maker with total sales of 3.19 million units. South Korea's Hyundai held on to third place, with sales of just over one million.
Barring unexpected political or economic turbulence, all these companies should set further record highs in 2014. Measures aimed at curbing pollution and congestion via license plate quotas will impact sales volumes in some of China's richer cities, but the decline in these locations will largely be offset by the fast-growing rise in demand coming from inland and lower tier cities.
The main focus of these latter markets will be affordable cars. But the fast-growing sophistication of consumers in even the most remote regions 每 able to access exactly the same information and exposed to the same influences thanks to the internet and especially the mobile internet 每 means taste and demand patterns are rapidly converging with those of the eastern seaboard.
As a result, regions once seen as primarily the preserve of domestic car makers, producing entry-level models, are increasingly being contested by the big global firms looking to leverage the experience acquired in their first years in China to the new emerging markets of the hinterland.
Meanwhile, in the richer cities of the east and south, faced with steeply rising license fees, ever more drivers are replacing their cars with upgraded vehicles: if you're paying more than 70,000 yuan for a license plate 每 as drivers now have to in Shanghai, then you will want 每 and can likely afford 每 to replace your current car with a more expensive model.
Even the government's anti-corruption efforts are failing to dampen sales in the luxury segment. Last year, BMW saw its sales rise by 20 percent, as did Porsche, while volume leader Audi saw its sales jump 21 percent to 492,000 units. Similar rises can be expected this year, although super-luxury may face some headwinds.
The continuing success of the global car makers, able to apply the strengths of their global supply chains through their joint ventures in China, makes it hard for domestic firms to compete. It looks likely that while their volumes may continue to rise in China their market share will fall. It is noteworthy that China's leading domestic auto company, Great Wall Motor, saw total sales rise 21 percent in 2013 to 754,000 units, almost solely due to a 48 percent rise in demand for its SUVs 每 to 417,000 units 每 rather than its sedans, whose volume fell.
Demand for electric vehicle shows no sign of rising to significant levels, even with central government subsidies being offered of up to 60,000 yuan per car. Total sales of plug-in cars were fewer than 15,000 units last year, with Shenzhen's BYD, once seen as the great electric vehicle hope, selling just 1,544 EVs 每 less than half a percent of its total passenger car sales.
Projects such as Kandi Technologies' plan to make 100,000 electric cars available to residents of Hangzhou on hourly rentals in the next two years 每 assuming their success 每 may help. But even so, hopes of meeting the government's goal of annual sales of 500,000 such vehicles by 2015 (and five million by 2020) now look unachievable.
Exports remain one of the few areas of weakness, with sales of Chinese cars overseas dropping nearly 10 percent in 2013 due to softening demand in emerging country markets in South America and the Middle East. With the yuan likely to continue its appreciation against the dollar and other currencies this year, combined with the continued buoyancy of the domestic China market, a further drop in exports looks likely for this year.
Further out, though, matters should improve. Shenzhen-based BYD has announced plans to start selling four models in the US in 2015, which would make it the first Chinese car maker to sell into what is still the world's richest auto market, while Qoros, the Sino-Israeli joint venture between Chery Auto and Israel Corp, has started test marketing cars in Slovakia as a first step towards selling into Europe.
Consolidation of China's fragmented auto industry still looks a long way off. Despite being home to more than 170 different vehicle makers, and reducing that number being an official goal for the last seven years, the combination of local government support for firms in their own backyards, plus the need for any merger or acquisition to be signed off by a host of central government bodies, has resulted in almost no progress.
Chinese car makers are likely to continue their search for overseas acquisitions that can boost their scale and especially their access to technology. The recent announcement that Wuhan-based Dongfeng Motor's would be buying 14 percent of PSA Peugeot Citroen for 800 million euros should smooth the way for transfers of both R&D and supply chain knowledge 每 vital if the two companies' China-based joint ventures are to meet their goal of doubling annual sales to more than a million cars annually.
This year is also unlikely to see any significant lifting of the rules restricting foreign ownership of car makers in China to a maximum of 50 percent. Although officials have spoken out about relaxing these conditions, with foreign brands dominating the Chinese market 每 indeed, slightly increasing their share 每 it is hard to see any change taking place before at least one domestic car maker has established itself as a force in the market.
When that might happen is anyone's guess. For certain it won't be in the Year of the Horse, while the race track will remain the preserve of the heavyweight Sino-foreign joint ventures. But as Ford's rapid rise last year demonstrated, who will be the eventual winners in the China car market remains an open question 每 and one unlikely to be decided before the end of this decade. Which horse to back is the main issue for discussion.