China’s 13th 5-Year Plan: Implications for the Automobile Industry

Abstract: 

It would be a mistake to read the 13th Five Year Plan (FYP) as if one were reading oracle bones for clarity on China’s economic future. Rather, it should be understood as the Chinese government’s long-winded wish list of what they would like to see happen in the economy. The 13th FYP suggests that the Chinese government would like to see innovative Chinese-brands dominate the market for new energy vehicles (NEVs). 2 While there are new and interesting developments that should be monitored closely, the government’s ability to realize their objectives are limited. Most NEVs on Chinese roads today are low-cost, low-tech models that were purchased by local governments looking to please Beijing and support local firms. The broader auto market in China is and likely to remain driven by sales of gasoline-powered vehicles, the majority of which are sold under the brands of foreign automakers.

The 13th FYP will probably not have a direct effect on American automakers, which are doing very well in China. In 2015, General Motors (GM) in conjunction with its local partners sold a record 3.6 million vehicles in China (36% of its global volume), making it the market leader. Meanwhile, Ford Motors and its partners sold more than one million units for the first time. The nationalist rhetoric in the 13th FYP may sound alarm bells, but the interests of American automakers will be buttressed by their large and politically influential state-owned partners, whose profitability depends on the continued success of their Chinese-made American cars.

An ongoing concern for the U.S. auto industry lies in declining employment at home, which is loosely tied to China’s vast auto market but largely driven by the fragmented and automated nature of today’s global automotive production networks. American automakers still tend to “build where they sell,” even in the U.S. The problem is that the parts they use to build their cars are increasingly imported from places like Mexico and China, where American parts suppliers have set up large factories. This offshoring of auto parts production is why the recordbreaking 17.4 million vehicles sold in the U.S. last year has not translated into more local jobs.

Click here to access the full article.


Author: 
Crystal Chang
Publication date: 
April 27, 2016
Publication type: 
Presentation