Home » Business » Autotalk Special
Tracking the trends as urbanization expands
Print Edition
China’s urbanization movement has given rise to a steady migration from rural to urban areas and even the emergence of rural towns into new cities. These trends also have fundamentally reshaped the transportation structure and are likely to intensify the demand for more versatile travelling.
In Tier 1 cities, more regulators are beginning to adopt sales restrictions on cars to combat traffic gridlock and address environmental challenges. Doors have begun to open for foreign investors and Chinese auto market industrialists in small and medium-size cities to drive development.
The PwC Autofacts China team researched the growth potential of various tier cities in the automotive market. In order to define “tier cities,” we divided 340 county-level cities into 5 categories by measuring car sales and economic indicators. We had 15 Tier 1 cities, with annual car sales above 200,000; 68 Tier 2 cities, with annual sales between 50,000 and 200,000; 118 Tier 3 cities, with annual sales between 20,000 and 50,000; 87 Tier 4 cities, with annual sales between 10,000 and 20,000; and 51 Tier 5 cities, with sales below 10,000.
According to the analysis, Tier 1 cities showed strong purchasing power and growth capability in the 10 years ended 2014. Growing at a 17.9 percent compound annual growth rate, 15 Tier 1 cities contributed 25.9 percent of incremental growth. However, growth of Tier 1 cities is being restrained by market saturation and government restrictions on car sales. As a result, the purchase of cars in the 10-year period shrank by more than 6.6 million and the growth rate fell to below the national average.
According to our estimates, purchase restrictions in Tier 1 cities will be expanded in 2015, and the automotive market overall will suffer proportionately. But, at the same time, there is still room for premium automotive products, like SUVs and luxury cars, to continue strong growth. In addition, with higher levels of digital literacy among consumers, car-sharing and car renting will become more widespread.
Our Tier 2 cities had a compound annual growth rate of 24 percent in 2010-14. They contributed 41.5 percent of incremental growth. Typical Tier 2 cities include Qingdao, Ningbo, Kunming, Shenyang and Baoding. Hebei, Henan, Shandong, Jiangsu, Zhejiang and Fujian provinces have the densest concentration of Tier 2 cities.
Tier 3 cities accounted for 23.8 percent in our 10-year survey and had higher compound annual growth rates than Tier 2 cities because of their lower comparative base. Tier 3 cities grew more than 15.1 percent in the period, surpassing the nationwide average.
Tier 3 cities stretch into more inland areas of China — provinces such as Hubei, Anhui, Shanxi and Sichuan. Some less developed regions, such as Wuhu, Liuzhou and Mianyang, have been selected as plant sites by domestic original equipment manufacturers like Chery, Dongfeng and Brilliance, helping promote the automotive industry and car purchases there.
Driving forces
In our opinion, Tier 2 and Tier 3 cities will continue to be the main driving forces behind growth in the Chinese auto market. First-time car purchasers will generate huge demand for small and compact vehicles, as well as lower-priced mid-size cars. International original equipment manufacturers already have adjusted and optimized their industrial structure. Price wars will become the “new normal” of the future.
We believe the focus of the automotive industry in Tier 2 and Tier 3 cities will shift from pre-sales to sales and after-sales services. As a result, in over-supplied markets, original equipment manufacturers should develop new business models to boost sales, including e-commerce, auto financing and the successful marketing methods of other cities.
At Tier 4 and Tier 5 cities, growth has been restricted by relatively lower standards of living. The 138 cities classed as Tier 4 and Tier 5 contributed 10.4 percent of incremental growth from 2004 to 2014. The combination of economic hardships and lower consumption levels indicates that the contribution made by Tier 4 and Tier 5 cities will remain low. Recently, an international original equipment manufacturer announced plans for a new low-cost vehicle plant, with a capacity of 360,000 units, for Jilin Province, where many Tier 4 and Tier 5 cities are located. These low-cost vehicle projects should help stimulate vehicle ownership ratio in Tier 2 and Tier 3 cities, and possibly even in Tier 4 and Tier 5 cities.
Jin Jun is PwC China consulting partner and Sophie Shen is PwC China consulting manager. The opinions here are their own.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
