China’s silver bullet to continue to grow GDP and retail sales

With borders open, overseas-based decision makers are finally returning to China to see how the country has changed over the last three-and-a-half years. One of the most visual changes are the cars on the roads. EVs are zipping around every block, and almost all of them are Chinese-branded.

Auto was one of the last categories where most self-respecting locals wouldn’t consider a domestic brand. They were considered less safe and a lot of Chinese cars of old didn’t look quite right. The newly-designed versions are now among the best looking cars on the road. Inside, they’ve incorporated Chinese consumers’ needs with a big focus on infotainment and integration with Chinese apps. They’re also better value than foreign alternatives, although some are selling at the premium end at over $150,000.

China's road to making nice wagons has been interesting. China missed the combustion engine boat, so rather than slogging it out trying to compete with the established and trusted brands from abroad, it doubled down on what it picked to be the next big thing – Electric Vehicles. Support from Beijing and by proxy, investors, saw massive focus on building the EV ecosystem in China. Roughly 500 EV start-ups launched in China over the past decade. Around 200 have gone on to receive Beijing’s certification to mass produce cars - creating a rich and competitive environment for innovation.

When China’s retail market was hurting last year, Beijing focused a lot of its support and policies on boosting EV sales, confident that this would help bolster its local industry. The 0.2% contraction of China’s retail sales last year would have looked a lot worse if it wasn’t for the 9.5% growth in car sales – a lot of shoes and shampoos need to sell to match the value of one car. Sales of Chinese car brands grew 22.8%, further supporting the fledging local industry. The market share of China’s domestic car companies rose to 52% in the last quarter of 2022, from 47% the year before. BYD has supplanted Volkswagen as China’s top-selling car, holding 10.3% of the car market, up from 2.1% four years ago.

It is a smart strategy. Support from Beijing and Chinese consumers has helped build a local ecosystem that is taking on the best in the world. Chinese carmakers are confident of overtaking Japan as the world’s No. 1 exporter this year with shipments of 4.5 million units. China exported over 300,000 cars in the first two months of the year, up 30.1% from a year earlier.

China’s development of a strong local auto industry aligns with Beijing’s aspirations of rising up the value chain with its manufacturing. This will see it join other power economies like Japan, Germany, South Korea, the US and the UK who have grown their GDPs on the back of a strong auto industry. It will also help counter the loss of manufacturing from companies diversifying supply chains, providing some assistance for China to continue to hit its GDP growth targets.

Few places allow for a real appreciation of where China’s auto industry is heading as much as the Shanghai Auto Show, which ends tomorrow. It is the first physical show since China opened up and is expected to draw 1 million visitors. More than 100 new models, including 70 EVs have made their global premiere, with Chinese models among those to make the biggest splash.

Whilst there was no shortage of slick new EV models to dazzle the car enthusiast, it was BYD’s Seagull that is likely to have the biggest impact on the car market globally, and China’s aspirations to make up a large chunk of it. The company has finally cracked the affordable EV. The ¥78,000 ($11,300) 5-door, avant-garde-Honda-Fit/Jazz-looking-run-around is available in two range versions from 305 to 405 kilometres, with 30-80% charging within 30 minutes.

Some of the success behind China’s rise in the auto industry can be attributed to Beijing’s support, manufacturing ecosystem and its large home market. Yet it is also the mindset to constantly innovate and adapt using data and insights, that has become a key characteristic to succeed in the Chinese market in any industry that is driving its advance. That has been a big driver behind VW’s 1 billion Euro investment into an EV innovation centre in China.

Brands across every category can learn from Chinese businesses’ approaches to quickly innovate and adapt, not just to compete in China, but to compete in the rest of the world. Contact China Skinny to learn more about the most effective business structure and strategies to achieve this.

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