Car Financing in China

OVERVIEW

China and its economy

Capital : Beijing

Population : 1.3 billion

Area : 9.6 million sq km

Currency : Yuan Ren Min Bi

GNP : $4 Trillion (2001)

GDP : PPP $7.262 trillion (2004 est.)

Per Capita : $5,600 (2004 est.)

Form : People's Republic

Official Languages : Chinese (Mandarin)

Growth Rate in Real GDP :

1999 7.1%

2000 8.0%

2001 7.3%

2002 8.0%

2003 8.4%

2004 9.1%

Inflation rate (consumer prices): 4.1% (2004 est.)

Located in South East Asia, China is home to 1.3 billion people and constitutes 22% of the world's population. Stringent rules of the Marxist policies, an autocratic socialist system, left China a conservative, under-developed nation for most part until refurbishment of economic and trade policies in the late 1970 and 1980 sluggish dragged a nation of China's gigantic magnitude towards market-oriented economic development. The well known Open Door Policy introduced in 1978 began the journey of opening up China, its economy and the markets to the outside world. Since then China has been a potential market to some of the world's best known brands, products and services, allowing thousands of private firms to bloom, from indigenous small-town enterprises, to giant manufacturing concerns, built with foreign money.

China and the World Trade Organization

On December 11, 2001, China officially became the 143rd member of the World Trade Organization after 15 years of onerous negotiations to conform to WTO requirements in terms of trade and investment policies and open markets. Largely symbolic for a country with a political history such as China, it was mainly a strategic decision made by the Chinese government to face the new revolution of economic globalization. Since the WTO entry, the Chinese government has significantly improved its functions and administrative capability. Not only that, China has begun to revise and improve the laws governing foreign trade and investments as well as consumerism in its local markets. After a year of working within the WTO framework, China had accelerated industrial restructuring, investing a total of USD 25 billion in technical innovation projects.

Accelerated growth and gdp

According to Ronkainen, China's integration into the world economy has resulted in spectacular numbers both in trade and investments. At a steady growth rate of 9.4%, world trade has quadrupled in 1990s to USD 474 billion.

With a high growth rate, both in terms of population (at 1%) and GDP (at 9%), China is a major player in the world market particularly in consumer markets. In 1996, trade totaled $246 billion ($130 billion exports plus $116 billion imports), an increase of 3% over 1995.

Exports being the key factor for its booming economic growth, China's major exports are labour-intensive products in light industrial and textile products, mineral fuels, heavy manufactures, and agricultural goods; Asian countries accounting for almost 40% of China's exports. China's chief trading partners are Japan, the United States, the European Union, South Korea, and Taiwan.

Major imports are machinery, steel, chemicals, miscellaneous manufactures, industrial materials, and grain. With an abundant wealth of land and labour, foreign investment alone accounted for 42% of the GDP, becoming the largest receiver of FDI in the world after the US.

Tariff levels

China, a large market of 1.3 billion consumers has always been tempting commercial players from the Europe and Americas, not only to just be able to sell their products in the huge Chinese market but also to be able to use its wealth of abundant resources such as land and cheap labor to manufacture to meet Chinese demands as well as for exports into other Asian economies. Of the many key factors playing a pivotal role in the ability of foreign makers to sell foreign or imported products, tariffs and taxes imposed by the Chinese government was a major obstacle. The symbolic and historic entry of China in the WTO in 2001 observed the significant lowering of trade tarrifs. China has been under tremendous pressure from WTO obligations reduced tariff rates from 43.2% in 1992 to 15.3 % in 2001 to the current 12 %. According to its WTO commitments it has to be noted that China may further reduce tariff levels to about 10% by end of 2005.

Foreign Direct Investment

The Chinese government's recognition of its two major attractions of low-cost labour and an enormous domestic market of 1.2 billion consumers has further propelled its initiatives toward economic reform such as opening up of markets and reducing tariff levels. As a result, foreign investment has intensified.

In the 1980s, foreign investors were restricted to export-oriented joint ventures with Chinese firms. In the early 1990s, they were allowed to manufacture goods for sale in the domestic Chinese market; and by the mid-1990s, the establishment of wholly foreign-owned enterprises was permitted. China's accession to the WTO, however, forces the government to open up the services sector as well. China's FDI inflows are in the tune of $53.5 billion and primarily capital-intensive, which means foreign companies are actually setting up industries in collaboration with Chinese companies to manufacture commodities at lower prices.

FDI in a developing economy means the development of the entire national economy on a grand scale, benefiting several other support industries, development of the country's infrastructure, raising standards of living and increasing per capita income. World-leading manufacturers on PC, electronic products, telecommunication equipment, pharmaceutics, petrochemical industry, and power equipment, have expanded their production network to China. Of these, Automobile Industry receives a significant share of the annual FDI to become one of the two pillar industries in China - the other being Real Estate.

AUTOMOTIVE