China Imports

China

Imports/Exports

Total U.S. exports to China in actual U.S. dollars and units

Type 2000 2001 2002 2003

Passenger $9,837,432 $11,582,427 $26,846,641 57,522,389

Passenger-UNITS 622 455 1,440 2,573

Medium & Heavy

Trucks and

Tractors

$5,295,632 $3,235,980 $2,048,302 8,817,318

Medium & Heavy

Trucks and

Tractors-UNITS

73 143 70 151

*Data Source: U.S. Department of Commerce, the U.S. Treasury, and the U.S. International Trade Commission

U.S. General Imports from China in actual dollars and units

List of

Commodities

2000 2001 2002 2003

Passenger

Vehicles & Light

Trucks-

DOLLARS

$1,525,774 $3,047,080 $7,826,444 $18,881,344

Passenger

Vehicles & Light

Trucks-UNITS

1,358 2,774 7,127 24,758

*Data Source: U.S. Department of Commerce, the U.S. Treasury, and the U.S. International Trade Commission

Overview

China is in an explosive stage of development of its auto sector. In the past year, 2003, China

produced 4.44 million autos and sold 4.39 million, a yearly rise of 35.2 percent and 34.21 percent

respectively. This year, China's automobile production and sales figures are both expected to

exceed 5 million units, up about 20 percent year-on- year. This is in sharp contrast to 1992 when

China produced 1 million vehicles. The Chinese central government predicts that by 2010,

Chinese production will reach 8 million units and 11 million units by 2015.

Over 100 local and foreign automakers are fighting for a piece of the hottest auto market in the

world. In a rush to satisfy demand, automakers are increasing manufacturing capacities, cutting

prices largely because of reduced tariff barriers resulting from China's accession to the WTO. It

is estimated that $18 billion has been invested in auto manufacturing in China since 1994, with

$6.3 billion (of the total $18 billion) invested since the beginning of 2002. In comparison, it is

estimated that there was $6.1 billion invested in the U.S. auto manufacturing in the same period.

On paper China's auto boom seems unlikely. China has a per capita income of $966 and

widespread poverty. Car ownership in China is still only between 5-6 units per 1,000 people.

However, China has pockets of wealth and prosperity within its 1.3 billion population.

Due to a lack of real competition, in the early years, market leaders Volkswagen and General

Motors were able to charge premium prices in China. After years of building its Chinese and

Asian business, General Motor's investment is paying off and making a healthy profit in its

Asian operations. For the third quarter of 2003, General Motors reported earnings of US$162

million in its Asian operations, or about US$ 1,200 profit per vehicle sold. This can be

compared with North American earnings of US$128 million, or US$102 per vehicle sold.

Similarly, Volkswagen reported that 80 percent of its first half 2003 earnings came from China.

The thirty percent or more price premiums once charged are disappearing due to increased

domestic competition, decreasing tariffs, increasing imports.

Ford, a relative newcomer to the Chinese market, has ambitious plans to become one of the top

three vehicle producers in China within the next 5 to 10 years. Ford's current capacity of 20,000

units will be increased to 150,000 units. Ford announced that it will invest an additional

U.S.$1.5 billion in manufacturing capacity, new models and expansion of its sales network.

Given the current rush to expand manufacturing capacity in China, there is a growing concern of

too much capacity. There are varying views on Chinese manufacturing overcapacity. Estimates

range between 1 million units to 2.5 million units excess over sales in the near term. The threat

of overcapacity in China causes a concern that unsold cars will be exported, following in the

export patterns of Japan and now Korea. Passenger car exports are new for Chinese domestic

automakers. Low and medium-end trucks, buses currently account for the majority of China's

overseas vehicle exports. Of interest, is the fact that nearly half of the current capacity is from

plants with foreign partners.

Large scale exports are not expected within the next five years because the manufacturers are still

focusing on building products for the booming domestic car market. In addition, the quality and

costs of Chinese products are still not internationally competitive in the near term. It is estimated

that China's