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China's Car Market Is Humming Again

In Shanghai
In Shanghai
Yang Xiaolin

BEIJING — China's automobile market is now expected to see double-digit growth by the end of this year, after two consecutive years' of relatively low growth. According to data published last week by the China Automobile Association, for the first 10 months of 2013, China’s car sales totaled 17.8 million vehicles, with a growth rate of 13.47% compared with the same period last year, and far beyond the 5% to 8% growth originally forecast.

Still, the longer road for the Chinese automobile sector is not all clear. After the car market’s “ten golden years” of the last decade, what will the expected “ten silver years” turn out to be? Is the reappearance of double-digital growth actually sustainable — or just a final mirage?

The reason for caution in the sector is that China’s overall economy is slowing down, and the car-buying impulse will be tamed. According to the predictions of industry experts, car sale volume can typically be predicted in proportion to the annual GDP: Automobile market growth ratio is usually 1.5 times that of the annual GDP growth rate.

China’s car market, however, has not followed this “rational growth,” neither in the golden decade nor in the past three years. The boom of Chinese family car ownership has brought significant negative impacts on both urban transport systems and the environment. This has in turn prompted “car purchase restriction orders” from the biggest cities like Beijing, Shanghai and Guangzhou, with many of the second and third-tier cities now also following suit.

“Because of this, it is impossible to predict how much the market will grow,” says one car sales manager.

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Traffic in Beijing — Photo: Jakob Montrasio

Over the past decade, China’s car market has seen several rapid accelerations, before a hard step on the brake. Though most people in the industry expect that the growth should be maintained at double-digits for next year, another common perception is that it is simply impossible to ever again see annual increases of 30%.

Shifting westwards

Because of the government measures tightening car purchase in the major coastal cities, more and more domestic Chinese automakers are targeting smaller towns. Due to China’s expected large-scale urbanization in the years to come, the car industry is betting in particular that their future growth will come from the smaller cities in the central and western parts of the country. One study predicted that next year consumers of China’s third and fourth-tier cities will make up 68% of China’s total car buyers.

“China’s upcoming urbanization will lead to a flow of people, logistics, money and information. It will bring for the car industry an immense business opportunity,” says Gu Shengzu, Vice-President of the Financial Committee of China’s National People's Congress. He believes that the third and fourth-tier cities as well as the vast rural areas are the major opportunity of the car industry, and in particular for China’s own brands.

“Our own brands understand the Chinese market and the local consumers better so that they have a more accurate product positioning,” he said.

Of course, in the major cities, thanks to the considerable demand for upgrades of features, high-class and luxury foreign brands will also have a good stake in China’s urbanization process.

According to the report of Banco Bilbao Vizcaya Argentaria released last August, in 2011 China's automobile penetration rate reached 56 cars per thousand persons — almost five-fold compared with 2003. But in contrast, in 2009, the world automobile average penetration rate was 125 cars per thousand people, which shows how huge the Chinese market potential still is.

Meanwhile, both energy and environmental concerns mean that car purchases will continue to be constrained by government regulations. This will provide a rare historical opportunity for those manufacturers who actively respond to environmental changes by rolling out cars that are more environmentally friendly, energy efficient and intelligently designed.

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Livestream Shopping Is Huge In China — Will It Fly Elsewhere?

Streaming video channels of people shopping has been booming in China, and is beginning to win over customers abroad as a cheap and cheerful way of selling products to millions of consumers glued to the screen.

A A female volunteer promotes spring tea products via on-line live streaming on a pretty mountain surrounded by tea plants.

In Beijing, selling spring tea products via on-line live streaming.

Xinhua / ZUMA
Gwendolyn Ledger

SANTIAGOTikTok, owned by Chinese tech firm ByteDance, has spent more than $500 million to break into online retailing. The app, best known for its short, comical videos, launched TikTok Shop in August, aiming to sell Chinese products in the U.S. and compete with other Chinese firms like Shein and Temu.

Tik Tok Shop will have three sections, including a live or livestream shopping channel, allowing users to buy while watching influencers promote a product.

This choice was strategic: in the past year, live shopping has become a significant trend in online retailing both in the U.S. and Latin America. While still an evolving technology, in principle, it promises good returns and lower costs.

Chilean Carlos O'Rian Herrera, co-founder of Fira Onlive, an online sales consultancy, told América Economía that live shopping has a much higher catchment rate than standard website retailing. If traditional e-commerce has a rate of one or two purchases per 100 visits to your site, live shopping can hike the ratio to 19%.

Live shopping has thrived in China and the recent purchases of shopping platforms in some Latin American countries suggests firms are taking an interest. In the United States, live shopping generated some $20 billion in sales revenues in 2022, according to consultants McKinsey. This constituted 2% of all online sales, but the firm believes the ratio may become 20% by 2026.

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