THE AUTOMOTIVE AND CONSTRUCTION EQUIPMENT INDUSTRY CHINA Fact Pack

1
THE AUTOMOTIVE AND CONSTRUCTION EQUIPMENT
INDUSTRY CHINAFact Pack

• Swedish Trade Council in China
• 2006

2
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Chinese Construction Equipment Industry
• Recommendations
• References

3
CHINESE MANUFACTURING INDUSTRY IS 11 TIMES LARGER
THAN THE SWEDISH - the automotive sector has
good growth prospects
5 largest manufacturing industries in China

• The total turnover of the Chinese manufacturing
  industry is SEK 15,107 billions.
• the Swedish manufacturing industrys turnover is
  SEK 1,357 billions.
• There are approximately 203 000 companies within
  the manufacturing industry in China
• -56 million employees
• The automotive industry has good growth
  prospects. The main reasons are low labour costs,
  expected quality improvements, low car ownership
  rates and a rapidly growing economy with
  increased personal incomes.
• The average wage for an industry worker in China
  is SEK 5.2 per hour

Billion SEK
The automotive industry amount to 8 of the
total manufacturing industry
Source China statistical yearbook 2005, China
Machinery Industry Federation, Automobile
Component Industry Trends Report
4
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Passenger Cars
• Commercial Vehicles
• Suppliers
• Chinese Construction Equipment Industry
• Recommendations
• References

5
THE CHINESE SALES OF CARS AND COMMERCIAL VEHICLES
TOTALS SEK 508 BILLION 2004- the automotive
industry grew more than 12 2004
Sales of automotive industry products in China
Billion SEK
Motorcycles SEK 64 billion
Accessories of automobiles and motorcycles SEK
182 billion
Special vehicles SEK 62 billion
Cars and commercial vehicles SEK 508 billion
Engines SEK 31 billion
The automotive industry has been growing steadily
Source China Automobile Industry yearbook 2005,
China Statistical Yearbook 2005
6
5.8 MILLION VEHICLES ARE PRODUCED IN CHINA- 2.78
million passenger cars and over 3 million
commercial vehicles

• Chinas vehicle production is projected to
  grow at 15 per annum to hit 8 million vehicles
  in 2008.

VEHICLE MANUFACTURERS
COMMERCIAL VEHICLES (5,800,000 vehicles)
LIGHT TRUCKS (1,150,000 vehicles)
BUSES ( 1,170,000 vehicles)
HEAVY TRUCKS (700 000 vehicles)
PASSENGER CARS (2,780,000 vehicles)

• 7 manufacturers
• FAW Group Jie Fang
• Shanghai Automotive Industry Corp (SAIC)
• Changan
• Dongfeng Motor Co. (DFM)
• Beijing Automotive Industry Holding (BAIC)
• Hafei
• Changhe-Suzuki

• 6 manufacturers
• FAW
• SAIC
• Changan
• DFM
• Xiamen King Long
• Changhe-Suzuki

• 7 manufacturers
• FAW
• DFM
• SAIC
• China National Heavy
• Duty Truck (JV Volvo)
• BAIC
• Shaanxi Automotive Group
• Qing Ling Auto Group

• 30 manufacturers
• FAW Group (JV,Volkswagen,Toyota)
• SAIC (JV GM, Volkswagen)
• Changan (JV Ford)
• DFM (JV Nissan)
• BAIC (JV Honda, BMW, Hyundai)
• Guangzhou Automobile Industry Group (JV Honda
  Toyota)
• Brilliance (JV BMW)

Many groups hold joint ventures with foreign
players
Source ( STCs estimation) National Economy
Statistic Center China, China automotive industry
Yearbook 2005 www.eiu.com,, www.chinabuses.com,
www.globalautoindex.com, csm worldwide
7
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Passenger Cars
• Commercial Vehicles
• Suppliers
• Chinese Construction Equipment Industry
• Recommendations
• References

8
THE PASSENGER CAR PRODUCTION IN CHINA IS GROWING
FAST -About 4 million passenger cars were
produced in 2005
Passenger Car Production in China
Development the last 5 years

• Passenger car production grew up by million for
  the last five years.
• More and more international automotive
  manufactures march into Chinses market by set up
  producion JVs with the Chinese manufacturers.(
  Volkswagen with FAW and SAIG, Honda and Toyato
  with GAIG, DFM and Nissan, Ford with ChangAn,
  etc.)
• More private or collective capitals invested into
  automotive industry to manufacture self-owned
  brand automotives, such as Chery, Great Wall and
  Geely,etc.

Vehicles
Source Report and Statistics from China
Automotive Industry Association
9
THE LARGEST PASSENGER CAR MANUFACTURERS MAKE
THEIR PURCHASE DECISIONS IN CHINA
6 largest companies for passenger cars in China
Passenger Cars
Source Corporate websites
10
THERE ARE AROUND 67 CAR MANUFACTURING PLANTS IN
CHINA- FAW and SAIC produce the most
The 5 largest OEM car manufacturers in China
Source Magazine Automobil Produktion, China
Daily, www.globalautoindex.com, Corporate
websites
11
COOPERATION BETWEEN FOREIGN AND CHINESE PLAYERS
IS INCREASING
Trends within the Chinese passenger car industry
Globalization

• Global integration increases more cooperation
  between foreign and Chinese players
• Local protection is decreasing, but still existing

Market and Competition

• Market is optimistic, car sales is expected to
  grow at 5-7 annually till 2010
• Competition is tougher, with Japanese/Korean cars
  taking share from European/American cars
• Locals are expected to grow fast, especially
  Chery and Geely

RD

• Most foreign RD takes place offshore, due to the
  IPR issue
• Local companies are spending a lot of efforts on
  RD

Source STC analysis
12
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Passenger Cars
• Commercial Vehicles
• Suppliers
• Chinese Construction Equipment Industry
• Recommendations
• References

13
LIGHT TRUCK PRODUCTION REACHES ALL TIME HIGH
- due to need for Chinese
economic development
Commercial Vehicle Production in China
Development the last 5 years

• Light truck made up the main part of commercial
  vehicle production in the last 5 years.
• Steady Chinese economic growth have drawn the
  need for commercial vehicles, leads to the
  prodution growth.
• Heavy truck and light truck production shrinked
  in 2005 because of the saturation of the market.
• .

Vehicles
Source Report and Statistics from China
Automotive Industry Association
14
THE LARGEST MANUFACTURERS OF COMMERCIAL VEHICLES
MAKE ALL PURCHASE DECISIONS IN CHINA
- Sino Truk and
Volvo partner in making heavy trucks
Commercial vehicles
Source Corporate websites
15
CHINESE COMMERCIAL VEHICLES MANUFACTURERS ARE
MOSTLY CONCENTRATED ALONG THE COAST AREAS
The 7 largest commercial vehicle OEM
manufacturers in terms of produced units
Hong Kong
Source Magazine Automobil Produktion,
www.globalautoindex.com, Corporate websites
16
DOMESTIC COMPANIES ARE THE MAIN PLAYERS ON THE
CHINESE MARKET - only Volvo and Mercedes have
invested in China
Trends within the Chinese commercial vehicle
industry

• It is estimated that China will have 20 more
  years of commercial car growth, with the rate to
  be 1.2-1.5 times GDP
• Truck will double its sales in 10 years, although
  its at a low season currently
• Bus is facing fierce competition from other
  alternatives e.g. flights and trains

Market

• Few foreign investors has actively entered the
  market
• Volvo and Mercedes-Benz has investments on bus
  already
• Main competition comes from domestic companies,
  FAW and Dongfeng take main truck share

Competition
RD

• Local companies are spending a lot of efforts on
  RD

Source STC
17
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Passenger Cars
• Commercial Vehicles
• Suppliers
• Chinese Construction Equipment Industry
• Recommendations
• References

18
THERE ARE MORE THAN 100,000 AUTOMOTIVE SUPPLIERS
IN CHINA
Geographical concentration of automotive
suppliers
Chinese automotive suppliers

• There are more than 100,000 suppliers for the
  automotive industry in China.
• All the large automotive suppliers in the world
  (if you look at the turnover) are presented in
  China.
• Automotive suppliers are mainly concentrated in
  location of East China.
• All the foreign automotive suppliers are joint
  ventures with local companies due to legislation.
• Local automotive suppliers products are mainly
  in the low-end markets.

19
MANY OF THE LARGE T1 SUPPLIERS ARE LOCATED IN
EAST CHINA- All major international players are
present in China.
TIER 1 SUPPLIERS
Electrical systems
Interior equipment
Propulsion
Body
Running gear

• Cables, bus systems, embedded systems
• Bosch
• Valeo
• Siemens VDO
• DENSO Corporation
• Delphi

• Power train, exhaust systems, engines
• Bosch
• FAWER
• Dongfeng

• Cockpit, seats, dash-board, air conditioning
• Visteon
• Valeo
• Delphi

• Suspension, brakes, axles, steering, tires
• Bosch
• Wanxiang
• FAWER

• Body, roof, glass, doors, lighting etc.
• FAWER
• Visteon
• FAWER-sihuan

FAWER is an affiliated corporation of FAW
Source China Automotive Association
20
TIER 1 SUPPLIERS
21
THE T1 SUPPLIERS ARE LOCATED NEAR THE VEHICLE
OEMs- All major international players are
present in China.
22
THERE ARE MANY T2 SUPPLIERS LOCATED IN CHINA- T2
Suppliers are mainly Chinese companies.
TIER 2 SUPPLIERS
Electrical systems
Interior equipment
Propulsion
Body
Running gear

• Cables, bus systems, embedded systems
• Weifu Group
• Guangdong Ruitu
• Changxiang

• Power train, exhaust systems, engines
• Great Wall
• Zhongding Group
• Hangzhou Auto Engines

• Cockpit, seats, dash-board, air conditioning
• Weifu Group
• Torch Automotive
• Tianjing Huafeng

• Body, roof, glass, doors, lighting etc.
• Weifu Group
• Dongfeng
• Auto Parts

• Suspension, brakes, axles, steering, tires
• Torch Automotive
• Dongfeng
• Wanxiang Group
• Jinfei Group 3000

Source China Automotive Association, Magazine
Automobil Produktion
23
TIER 2 SUPPLIERS (1/2)
24
TIER 2 SUPPLIERS (2/2)
25
THE T2 SUPPLIERS ARE LOCATED NEAR THE VEHICLE
OEMS - T2 Suppliers are mainly Chinese companies.
Great Wall Wuxi Weifu Group Tianjing
Huafeng Jinfei Group Changxiang Hangzhou Auto
Engines Dongfeng Hubei Components Zhongding
Group Torch Automotive Auto Parts Guangdong
Ritu
26
INTERNATIONAL SUPPLIERS MOVE RD CENTERS TO
CHINA- local suppliers still have the largest
market share
Trends within the Chinese Automotive supplier
industry

• Almost all large international suppliers
  (according to the turnovers) are presented in
  China.
• Local protection still exists.

Globalization

• Foreign players are at medium-high end market.
• Locals are taking main share, but at low end
  market

Competition and price reductions

• Local suppliers are spending efforts on updating
  their products.
• International suppliers start to have RD centers
  in China

RD-displacement
Source STC
27
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Chinese Construction Equipment Industry
• Manufacturers
• Suppliers
• Recommendations
• References

28
THE CHINESE PRODUCTION OF CONSTRUCTION EQUIPMENT
TOTALS ABOUT SEK 123 BILLION- the industry grew
more than 8 2005
Sales construction machinery in China
billion SEK
Road SEK 31.6 billion
UndergroundOthers SEK 28.6 billion
Lifting SEK 19.2 billion
Earth Moving SEK 45.6 billion
Growth is mainly driven by domestic sales
Source China Machinery Magazine
29
MORE THAN 266,000 CONSTRUCTION EQUIPMENTS ARE
PRODUCED IN CHINA
SOME TOP CONSTRUCTION EQUIPMENT MANUFACTURERS
ROAD (45,323 vehicles)
UNDERGROUND (4,989 vehicles)
EARTH MOVING (136,664 vehicles)
LIFTING (79,262 vehicles)
Graders,Concrete Mixer, Asphalt Paver, Road Roller

• Wheel loaders, Drills, Haulers, Pile Hammer

Excavators, WheelLoaders, Backhoe loaders, Skid
steer loaders, Bulldozer
Mobile cranes, Tower Crane, Forklifts,
Truck-mounted Crane

• 5 manufacturers.
• Guangxi Liugong Machinery Co., Ltd
• Xuzhou Construction Machinery Group.Inc
• Shenyang North Traffic Engineering Company
• China Infrastructure Machinery Holdings Limited
• Xiamen Engineering Machinery Co., Ltd

• 4 manufacturers
• Shenyang Heavy Machinery Group Co.,Ltd
• Inner Mongolia North Heavy Industries Group
• Changlin Company Ltd.
• Shanghai Engineering Machinery Co.,Ltd

• 5 manufacturers
• Xuzhou Construction Machinery Group.Inc
• Guangxi Liugong Machinery Co., Ltd
• Xiamen Engineering Machinery Co., Ltd
• Changlin Company Ltd.
• China Infrastructure Machinery Holdings Limited

• 4 manufacturers
• Xuzhou Construction Machinery Group.Inc
• Shenyang North Traffic Engineering Company
• Guangxi Liugong Machinery Co., Ltd
• Changlin Company Ltd.

Source National Development Reform Commission,
Construction Machinery Magazine, China
Construction Machinery Association
30
THE CONSTRUCTION EQUIPMENT INDUSTRY IS
CONCENTRATED TO THE COASTAL AREA OF CHINA
The 6 largest OEM construction equipment
manufacturers in China
Source Corporate websites and annual reports
31
MAIN CONSTRUCTION MANUFACTURERS CONCENTRATED IN
THE SOUTHEAST COAST OF CHINA

• Xuzhou Construction Machinery Group.Inc
• China Infrastructure Machinery Holdings Limited
• Changlin Company Ltd.
• Xiamen Engineering Machinery Co., Ltd
• Guangxi Liugong Machinery Co., Ltd

32
CONTENT

• Overview Chinese Manufacturing Industry
• Chinese Automotive Industry
• Chinese Construction Equipment Industry
• Manufacturers
• Suppliers
• Recommendations
• References

33
SUPPLIERS OF CONSTRUCTION EQUIPMENT ARE MAINLY
LOCATED CLOSE TO ENGINEERING MACHINERY
MANUFACTURERS
SUPPLIERS
Electrical systems
Interior equipment
Propulsion
Body
Running gear

• Cables, bus systems, embedded systems
• Shanxi Sunland Automatic Control
• Xian Kind Electrical Control Instruments
• Shanghai Pal-fin Automatic Control Technology

• Power train, exhaust systems, engines
• Cummins
• Hangzhou Advance Gearbox
• Qidong Sanshang Electromechanical
• Sichuan Gear Works
• Torque Converter Shantui Construction Machinery
• Zhejiang Linhai Machinery
• Hubei Guanghua Transmission

• Cockpit, seats, dash-board, air conditioning etc.
• Zhejiang Tiancheng Seat
• Shandong CAB
• Fenghua Hearty Motormeters
• Yuxin Automotive Air Conditioning
• Hangzhou Nealley Vehicle Air Conditioning

• Body, roof, glass, doors, lighting etc.
• XuZhou YangSheng Machine
• Taixing Huaheng Lamp Plastic

• Suspension, brakes, axles, steering, tires
• Wanxiang Group
• Xuzhou Zhengxing Axle
• Wuxi Shengfeng Vibration Isolator
• AsiaTrak
• Wendeng Sanfeng Tire
• Hangzhou Zhenxing Friction Material
• Liaoan Section Mill
• Shandong Shantui Ouyatuo Machinery
• Baoding Jizhong Bushing Factory
• Tianjin Ribiao

Source Parts and Components Branch of China
Construction Machinery Association
34
SUPPLIERS TO THE CONSTRUCTION EQUIPMENT INDUSTRY
(1/3)- All purchase decisions are made locally
Source Company website
35
SUPPLIERS TO THE CONSTRUCTION EQUIPMENT INDUSTRY
(2/3)
Source Company website
36
SUPPLIERS TO THE CONSTRUCTION EQUIPMENT INDUSTRY
(3/3)
Source Company website
37
THE CONSTRUCTION EQUIPMENT INDUSTRY IS
CONCENTRATED TO THE COASTAL AREA OF CHINA
XuZhou YangSheng Machine Taixing Huaheng Lamp
Plastic Wanxiang Group Xuzhou Zhengxing Axle Wuxi
Shengfeng Vibration Isolator AsiaTrak Wendeng
Sanfeng Tire Hangzhou Zhenxing Friction Material
Liaoan Section Mill Shandong Shantui Ouyatuo
Machinery Baoding Jizhong Bushing Factory Tianjin
Ribiao
Shanxi Sunland Automatic Control Xian Kind
Electrical Control Instruments Shanghai Pal-fin
Automatic Control Technology Zhejiang Tiancheng
Seat Shandong CAB Fenghua Hearty
Motormeters Yuxin Automotive Air
Conditioning Hangzhou Nealley Vehicle Air
Conditioning Cummins Hangzhou Advance
Gearbox Qidong Sanshang Electromechanical Sichuan
Gear Works Torque Converter Shantui Construction
Machinery Zhejiang Linhai Machinery Hubei
Guanghua Transmission
Source Corporate websites and annual reports
38
THE MARKET IS BEING RESTRUCTURED UNDER
SUPERVISION FROM THE GOVERNMENT
Trends within the Chinese Construction Equipment
industry
Restructuring

• Market restructuring happens with the supervision
  from the government
• Sanyi and Carlyle Group are under the negotiation
  with Xu Gong acquisition

• Foreign, esp. Japanese and American players are
  at medium-high end market, with low volume
• Locals are taking main share, but at low end
  market

Competition
Technology

• Locals are taking efforts to develop premium
  products
• IPR is still a concern to many foreign investors

Source STC
39
CONTENT

• Overview German Manufacturing Industry
• German Automotive Industry
• German Construction Equipment Industry
• Recommendations
• References

40
RECOMMENDATIONS FOR MAKING BUSINESS WITH THE
CHINESE AUTOMOTIVE INDUSTRY
Recommendations for making business with the
Chinese automotive industry
Country specific
Although China has low labor costs, operation
costs could be high why investors are recommended
to make careful plan before they enter China
1.
2.
Chinas automotive sector is not fully open yet,
and many market restrictions still exist. IPR
issue is still worth considering
3.
Investors are recommended to build long term
relationship with its partner and relevant
authorities
Industry specific
It is necessary to carry out certain market study
to understand the market and customers
1.
It is necessary to carry out certain market study
to understand the market and customers
To visit the potential customers or partners can
be a good start for the business
2.
To visit the potential customers or partners can
be a good start for the business
China encourages investors to source locally, and
set quite high duty on importing parts.
3.
China encourages investors to source locally, and
sets quite high duty on importing parts.
Source STC
41
CONTENT

• Overview German Manufacturing Industry
• German Automotive Industry
• German Construction Equipment Industry
• Recommendations
• References

42
HOW STC IN CHINA SUPPORT COMPANIES TO DO BUSINESS
IN CHINA
Description of service
Example of result
Sample clients / Products
Market Check
Map out the current situation in China for a
specific product or service
Give the company a base for deciding if to enter
the market or not / making a cost estimate for
setting up production

• Plastic production company
• Household appliance manufacturer

SalesSupport
Making test sales in China of a product and
collecting feedback from potential customers to
sharpen local offering
Modifying the product portfolio and sales pitch
to better suit the Chinese market.

• Producer of alloys
• Springs for the automotive industry

Partner search
Finding the most suitable agents or a
distributors in China or Hong Kong based on the
needs of the Swedish company
Making the Swedish and Chinese understand each
other and finding common ground

• Leather for interior design
• Dental products

Recruitments
Map out the needs of the company, work out a
profile and find the best possible candidate to
that profile
140 recruitments over the last two years
(Examples Swedish GMs, Asia managers, local
sourcing, local sales, QCs)

• Logistics
• Plastic manufacturing

Supplier search
Find the best possible supplier that matches the
criteria set by the Swedish company to get the
best competitive advantage
Matching, explaining and verifying technical
needs with local production capacity

• Cast iron products, cables, containers,
  disposables, electronics

BusinessSupport Office
A quick low risk establishment in China either
in the form of a full time staff or as part time
support together with office space
Over 50 staff employed in China and Hong Kong
that works 100 for the Swedish company but that
is employed by STC

• Purchasing staff, sales staff, quality control
  staff, Swedish staff

Company establishment
Establishments and setting up of production- or
trading companies in China and / or Hong Kong
Assist in establishing all types of presences
representative offices, WFOEs, FICE and Ltds (HK)

• Lighting products
• Aluminum manufacturing

Besides this we often custom made projects to
suit our customers needs
43
STC HAS HELPED NUMEROUS SWEDISH COMPANIES TO DO
BUSINESS WITH THE CHINESE AUTOMOTIVE INDUSTRY
44
STC CARRIED OUT A POTENTIAL CUSTOMER SEARCH AND
VISITING PROGRAM FOR SEMCON
Goal
Outline of project
The overall objective of this assignment was to
assist Semcon in investigating the market
potential in Eastern China in and to further
strengthen Semcons market position in Asia.
STC role and contribution
Potential customer search
Visiting program

• Conducted a pre-study of potential customers, and
  set up a visiting program with a number of of
  RnD-managers at automotive manufacturers in
  Eastern China with STC.
• Assisted and advised Semcon in its meetings with
  potential partners during the visiting program
• STC also supported Semcon in the process of
  selecting customers.

Kick off
Workshop 1
Workshop 2
Kick off The start-up meeting resulted in a
skilled project team and detailed project
planning. Step 1 STC carried out the potential
customer search program. Workshop 1 Presentation
and discussion of the potential customer search
deciding next step including planning of visiting
program. Step2 Semcon visits China and meets
with RnD-managers within the automotive industry
together with STC. Workshop 2 Discussion of
visiting program and next step.
Results

• A recommended list of companies that met Semcons
  criteria was presented with company profile and
  STCs comments and advices.

45
STC CARRIED OUT A RECRUITMENT AND BUSINESS
SUPPORT OFFICE (BSO) PROJECT FOR NEDERMAN
Goal
Outline of project
The overall objective of this assignment was to
assist Nederman to successfully enter the China
market.

STC role and contribution
Employment at BSO
Interviews
Advertisement

• STC supported Nederman to recruit two Sales
  Managers for the China market
• STC assisted Nederman to legally employ the
  staff under STC in East China (BSO concept) until
  Nederman decides to set up its own presence in
  China.
• By employing the representatives through STC BSO,
  Nederman will in reality have the same
  capabilities in China as if they would have its
  own Representative office.

Shortlist
Recruitment
Kick off

• Kick off necessary candidate qualification
  discussion, choice of ad media, decided
  recruitment schedule.
• Step 1 advertisement on newspaper went
  publications for candidate search.
• Shortlist review candidates profile to narrow
  down amount of candidates.
• Step 2 interviews by Nederrman and STC with
  selected candidates.
• Recruitment qualified candidates employed.
• Employment at BSO with office space, office
  equipment and financial services provided by STC,
  employees start to work for Nederman.

Results

• STC helped Nederman in establishing a presence in
  China and has now two sales managers working full
  time.