Automobile Industry China Essay

? china became the realisms largest rail car make growr and mart in 2009 with one and only(a)-year sales of near 14 one jillion jillion million fomites. The mart continues to expand in 2010. In the jump nine months of 2010, carmobile teach reached 13. 08 million units, a 36. 1 percent increase from a year ago. The chinaw be tie of simple machinemobilemobile Manufacturers (CAAM) raised its forecast for annual sales to reach a record 17 million this year, matching the postgraduateest annual total of all time reached in the get together pronounces. labor fruit has been in the main driven by rising home(prenominal) consume stemming from rising incomes, a exploitation midriff class, and by supportive pains policies from the Chinese governing. The Chinese self-propelled persis goce re mains very fragmented. In addition, Chinese of import politics officials terror that unchecked expansion of chinawargons cable car assiduity further by local anesthe tic anesthetic authorities could harm the wider economy, and that excess depicted object must be stopped.Hence, the primeval judicature continues to push for mergers and acquisitions (M&A) in the self-propelled labor which leave behind support the emergence of a few leading national companies. chinas weak R&D, interior(prenominal) innovation and convention capabilities be key challenges to its international matchedness. With the governing bodys encouragement, municipal firms entertain opted for strategic accompliceships with alien players, aiming to facilitate technology transfer and improve interior(prenominal) purpose and locomotiveering capabilities.The Chinese presidential term has implemented a act of tax revenue adjustments and subsidies for carmobilemobile purchases to encourage hybrid voltaic automobile fomites, pure electrical vehicles and traditional vehicles of small railway locomotive displacement. Beijing has gradually introduced higher au tomobile emission standards for natural vehicles. purposes to develop hybrid electric and pure electric vehicle occupation capabilities are part of a hugeer, environmentally palsy-walsy outline to develop the auto effort.Market opportunities exist especially in the hobby areas o Developing domestic innovation capabilities (e.g. vehicle design and railway locomotiveering, hybrid electric and pure electric engines, electric motors and electric controls) o Productivity and gauge upgrade (e. g. engines, transmissions, electronic control systems and safety systems) o Mergers and acquisitions (both in mainland mainland chinaware and in Israel) o Clean transportation technologies 3 chinas railcarmotive celestial sphere inclined(p) for IEICI Updated November 2010 (Original April 2009) ? ? ? ? ? ? o forward-looking manufacturing technologies o Supply of essential self-propelling components/systems to OEMs (e. g.electronic control systems and safety systems) ?The following se lf-propelling segments in mainland mainland mainland chinaware are reached to be highly competitive and it leave alone in all likelihood be difficult for Israeli firms to penetrate the securities industry unless they run through an extreme competitive advantage Fabric for canfuls/interiors, seat covers, floor mats, curtains, aluminum die casting, rubber bumpers, electronic harness cables, antennae, speakers, electric starters, vehicle cleaning products, window films, A/C compressors, fuel and oil color and air filters. 1. MARKET OVERVIEW ? ?mainland chinawares self-propelling foodstuff has the close step-up probable in the world per capita car ownership is tranquilize remarkably low at 4. 78% and is pass judgment to grow significantly. municipal whole-vehicle dors and self-propelling suppliers are unflustered extremely fragmented (government-supported consolidation is at hand(predicate) in the near future) challenges remain for domestic R&D and design. With gover nment subsidies and tax incentives, mainland chinaware is aiming to establish an early footing in the production of low-emission and environmentally fri block uply automobiles.Component imports surged by 130% in the runner half(a) of 2010 60% of imported components were drivetrains, engines or automotive body components. ? ? 1. 1 GENERAL OVERVIEW Market Growth Primarily fueled by domestic and partly by outside invite, chinas rapidly expanding automotive industry has outpaced the nations already fulgurous GDP ontogeny rates in recent old age. Domestically, rising incomes and encouragement from the Chinese government for the urban population to obtain drivers licenses go for spurred the exact for rider vehicles. The well-off rider vehicle market has led to a soaring demand for automotive components.Internationally, automotive manufacturers faced with decreasing margins and profitability take in desire out to a greater extent affordable supply chain solutions, looking to China as a effectiveness source for lower cost automotive components. Unlike unquestionable markets for passenger vehicles, where growth in demand has been by and large stagnant, Chinas domestic demand for new-made automobiles has skyrocketed in the past times years. Strong car sales in China in 2009 pushed the auto market to the largest in the world, and 2010 is set follow the positive tr decease. 4 Chinas self-propelling Sector inclined(p) for IEICI Updated November 2010 (Original April 2009).Source China companionship of self-propelling Manufacturers (CAAM) In the first nine months of 2010, automobile sales reached 13. 08 million units, up 36. 1% from a year ago. Over 9 million of the total sales were passenger cars and 3. 24 million were commercial vehicles. CAAM predicted that the 2010 annual sales go away reach a record of 17 million units. It is widely believed that Chinas automotive market currently has the close growth potential in the world. Chinas 2009 per capita private car ownership was 4. 78%, far less than the 40% average of developed countries, and even less than other uphill markets such as Russia, brazil nut and India.This is a strong indication that Chinas domestic market is far from being overly saturated. agree to CAAM predictions, growth in the auto industry will remain strong until 2020 with annual growth expected to consistently range from 13 to 15 percent. The total public figure of vehicles will jump from 67 to 150 million. Sales in larger tierone and tier-two cities as well as rural areas should keep growing at a rapid pace over the next few years and high growth areas will move from eastern China to the central and western sandwich regions.Market Players There are currently more than 100 whole-vehicle manufacturers and nearly 8,000 automotive separate manufacturers in China, located primarily in Southern, Eastern, and northeastern and central China (see the map on the right). Together, the top ten passenger vehicle manuf acturers (seven of which are common ventures (JVs) make up nearly 90% of Chinas market share (see the table below). Nearly all major broadcastetary vehicle manufacturer has formal JV operations in China. 5 Chinas automotive Sector nimble for IEICI Updated November 2010 (Original April 2009).Top 10 Passenger Vehicle Manufacturers in China (2009) point 1 2 3 4 5 6 7 8 9 10 Source CAAM Company SAIC1 FAW2 Dongfeng Chana (incl. Hafei) Beijing Auto Guangzhou Auto Chery BYD Brilliance Geely Others HQ nobble Changchun Wuhan Chongqing Beijing Guangzhou Hefei Shenzhen Shenyang Taizhou JV associate GM, VW VW, Toyota, Mazda PSA, Nissan, Honda Ford, Mazda, Suzuki Hyundai Daimler Honda, Toyota, Isuzu, Fiat N/A N/A BMW, Toyota N/A Sales (Unit) 2,705. 5K 1,944. 6K 1,897. 7K 1,869. 8K 1,243. 0K 606. 6K vitamin D. 3K 448. 4K 348. 3K 329. 1K 1,750K Market Share 19. 83% 14. 25% 13. 91% 13. 70% 9. 11% 4. 45% 3. 67% 3. 29% 2. 55% 2. 41% 12.84% Import Positive demand growth for automobiles and components has not only caused domestic industry development, but has led to increase attention from leading foreign automotive manufacturers eager to expand into the rapidly growing market. abroad automotive manufacturers devote as well been encouraged by lower import tariffs, which consume been lowered for whole vehicles from 70-80% to 25% since China joined the World look at Organization (WTO). Import tariffs on Semi-Knocked-Downs (SKDs) and Complete-Knocked-Downs (CKDs) down dropped from 50% to 25%, era import tariffs on vehicle components pick up dropped from 15% to 10%.1 2 Shanghai self-propelled manufacture Corporation First Auto Works 6 Chinas automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Chinas automotive import growth was slowed due to weaker demand caused by the world(a) stinting crisis of 2009. Annual total import were USD 33. 1 billion in 2009, representing a year-onyear increase of only 5. 34%. assist by government ince ntive programs and Chinas economic recovery, Chinas auto import total bounced back from a squashy 2009, surging by 130% to USD 27. 22 billion in the first half of 2010. Imported European luxury cars had a remarkable 237.2% increase in 2010 compared to the same period the previous year. Chinas automotive component imports grew to USD 12. 7 billion in the first half of 2010, a 90% increase over the same period of 2009. Drivetrain, engine and automotive body components accounted for over 60% of the total component imports (see chart). more than 80% of the imported components came from Japan, German, Korea, and the United States. The main groups of imported automotive components to China can be divided into tercet categories ? Japanese and Korean OEMs and ground level I suppliers everydayly these companies tend to only use suppliers from their hoidenish of origin.For example, Toyota typically sources components from Japanese JVs or Wholly Owned Foreign Enterprises (WFOEs) on the ma inland, or directly imports from Japan. Such practice tends to guide from strict timbre requirements, ethnic compatibility and logistical concerns. German OEMs and score I suppliers These companies typically import components in the areas where Chinese suppliers are weak (e. g. safety systems for high-end passenger cars). The US and cut OEMs operating in China have not increased their automotive component imports as much as their peers for different reasons.US OEMs have steadily increased their sourcing from local Chinese suppliers for vehicles manufactured in China to stay competitive, and French OEMs are go about a shrinking market share in China. ? ? Chinese OEMs are emerging buyers of imported automotive components, especially in the segments of hybrid and electric vehicles and Chinese-brand luxury vehicles. 7 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Export The impact of the economic crisis in 2008-2009 forced many multinatio nal companies to reduce their sourcing of automotive vehicles and components from China.According to CAAM, China exported a total of 369,600 units in 2009 worth USD 5. 19 billion, which was hatful by 46% from 2008. Chinas auto exports rebounded as the global market recovered in 2010, with 250,100 vehicles exported in the first six months (up 55. 93% year-on-year). Passenger vehicle exports surged 115. 93% to 116, viosterol units, while commercial vehicle exports increased 25. 50% to 133,900 units. Algeria, Vietnam and Egypt were the major whole-vehicle export destinations in the first half of 2010. The auto components export growth has witnessed even more impressive growth than whole-vehicles.Exports increased 54. 11% to reach USD 18 billion in the first half year of 2010, with drive system components exceeding 50% of the total by value. more than than 50% of the components were exported to the USA, Japan, South Korea, Germany and the United Kingdom. 1. 2 MARKET STRUCTURE Supplie r Landscape The automotive supplier grace in China is extremely fragmented. According to CAAM, there are around 8,000 automotive enterprises scattered across various segments including unspoilt vehicle manufacturing, vehicle refitting, motorcycle production, engine production and automotive move manufacturing.Most of these companies particularise in lower-end parts and lack the capital needed to point in production of higher quality products. Seven of Chinas ten largest components manufacturers are foreign companies, and round 70% of the countrys USD clx billion auto supply market is occupied by foreign companies or joint ventures. There are approximately 120 OEMs in total, 40% of which produce passenger vehicles. One of the key contributors to the fragmentation of the automotive market as a whole is that Chinese suppliers serve a large amount of separate OEMs.The worlds leading automotive companies are all well- open up in China. OEMs are represented by Ford, General pushs ( GM), Volkswagen (VW), Daimler, BMW, PSA, Mazda, Nissan, Honda, Toyota, Hyundai, and tier-one international companies including Bosch, Delphi, Denso, Johnson Controls, Lear, Magna, Visteon, Yazaki, ZF, Arvin Meritor and TRW. 8 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Most of the international automaker and component manufactures have inducted heavily in China in attempts to gain a competitive edge.For example, GM, Ford and painter Land Rover have established their Asia Pacific headquarters in China. GM, VW and Honda have as well opened China R&D centers and have begun to design car models specifically for the Chinese consumer. International automotive components companies have also expanded their presence in China. For instance, BorgWarner recently opened a China Technical Center. ZF announced the establishment of its Asia Pacific headquarters in Shanghai as well as a new Shanghai R&D center. Eatons Asia Pacific headquarters is in S hanghai. fast expansion from international firms has let to foreign-invested automotive components suppliers holding 70% of the Chinese market share. Most of the top Chinese automotive parts manufacturers are wholly owned domestic companies such as ASIMCO, Wanxiang, Hongteo, Fuyao, Dicastal, Wanfeng and others. These companies could be potential competitors or partners for Israeli companies. In response to the soaring domestic demand, Chinese automotive component manufacturers have ramped up their production capacities significantly, but this has also led to an increase in quality complaints.Key Challenges for the Domestic Industry Chinese suppliers are without delay looking beyond the domestic market and improving their production process to emerge as true global competitors. However, further investment in R&D is as yet essential before Chinese manufacturers can truly compete globally, as the industry still lacks technological capability and suffers from quality issues. Chinas A utomotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Chery Automotive (Chery) ? Founded in 1997 and now has an annual production capacity of 650,000 vehicles, 400,000 engines, and 400,000 sets of gearboxes.? Continues to expand into the overseas market and has established plants in 16 countries becoming the biggest Chinese vehicle exporter for seven incidental years. ? Chery Automobile Test & Technology Center opened in July 2010, which became the largest auto lab in Asia. The company will invest RMB 2. 4 billion in 2010 to accelerate its new model development. ? Chery now owns a full set of manufacturing and R&D facilities, including four car plants, two engine plants, a gearbox plant, an automobile engineering research institute, an automobile plan and design institute and an automobile test & technology center.? Have considerable technological and business relationships with overseas auto companies. Chery signe d an agreement with Chrysler to produce Chery made cars under the Chrysler brand to be sold in the United States and Mexico. ? Chery Quantum Auto. Ltd is a joint venture between Chery and Quantum LLC under an Israeli Group. They aimed to invest USD 334 million in 2010 to develop high-end cars and SUVs for the overseas market. 9 R&D capability Chinese automotive component manufacturers are able to manufacture products when they are provided with designs and specifications, however most of them lack design, engineering and R&D capabilities.Owing to weak R&D and engineering capabilities, many local suppliers have opted to enter into technical collaborations or JVs with leading international suppliers with the conclusion of facilitating the transfer of technology and improve basic product engineering capabilities. A growing number of Chinese auto parts suppliers have begun to invest in and acquire western firms. Domestic R&D capabilities of Chinese automotive part manufacturers have hi storically been limited due to the nonaged of most operations and a shortage of investment in science lab facilities in comparison to international firms.Taking steps to remedy the situation, the Chinese government has continued to encourage investment in R&D for core systems, such as engines, transmission systems, counselling systems, brake systems and capricious control systems. Safety and reputational issues Incidents and product recalls have raised questions about the quality and safety standards of Chinese manufactured automotive components. According to the 2009 China Automotive Product Quality & After Service Quality report, among the 9359 complaints documented about Chinese made cars, 19.5% were related to engine problems 10. 5% to direction systems 10. 7% to braking systems 18. 5% to automobile feelerories and electronics and the remaining 40. 8% related to the gearbox, clutch, effort and rear axles, suspension systems and air conditioning systems. As a result of com plaints and recalls, as well as other non-automotive related manufacturing scandals in China including melamine milk, contaminated pet food, and anti-freeze laced toothpaste, Chinese manufactures are facing serious issues about their reputation.This is a problem local manufacturers will have to overcome if they want to increase their competitiveness on the global stage. The drivers are in place for Chinese domestic manufacturers to move to the forefront of the global automotive industry, but red-blooded domestic investment in R&D and improvements on quality and reputation are a necessity prerequisite. 1. 3 EMERGING INDUSTRY TRENDS Industry Drivers The rapid expansion of the Chinese automotive industry has been largely attributed to the growth in domestic demand for passenger vehicles and international demand for affordable automotive components.The Chinese government also continues to play an important role in encouraging the growth of the industry. 10 Chinas Automotive Sector Pr epared for IEICI Updated November 2010 (Original April 2009) Tier II and Tier III cities emerge as market growth engines In 2010, most multinational automakers have included a counselling on Central and Western China markets into their strategies in order to amaze future growth opportunities. For example, Volkswagen is ramping up capacity of its Chengdu plant more than stunt man its production of Sagitars and Jettas from 150,000 to 350,000.GAIC Toyota (a JV between Guangzhou Automobile Industry Corporation and Toyota) is considering construction a small and price-competitive car to target the lower end of the market. The JV also announced plans to expand its dealership network across central and Western China. Central and western China have emerged as the main growth engine of the automotive market. According to CAAM, automobile sales in second and third-tier cities in the first nine months of 2009 surged 41 percent and 51 percent respectively, while sales in the firsttier cities increased by 34 percent.Domestic demand has been fueled by rising incomes and a growing middle class creating a larger consumer culture. The purchase of an automobile is more and more becoming a symbol of financial success. In the past, the focus has been on coastal cities. Since 2009, tier II and tier III cities have emerged as the strongest market growth engines (see more details on your left) Even though large cities in China are facing serious commerce congestion issues, Chinese have not been deterred about making new automobile purchases.China overtook the U. S. as the worlds number one automotive market in January 2009. The positive developments in the passenger vehicle industry have benefitted both domestic auto manufacturers (which are emerging from their infancy stages and developing competitive capabilities) and major international automotive giants (which have increased investment into China to expand their presence). However, with per capita car ownership was still on ly 4. 78% in 2009, still far below the 40% average in developed countries.This is a strong sign that domestic demand for passenger vehicles will remain high in years to come. The domestic aftermarket for automotive components is increasingly becoming an important driver of the industry. More than thirteen million cars are sold annually in China which is leading to a growing market for automobile repairs and further elating domestic demand for automotive components. International demand for automotive components has also increased as international automotive firms face pressures to reduce be and take advantage of more economical alternatives abroad.Chinas flashy labor force presents an attractive option for producing lower-cost automotive components, which were initially primarily for the international aftermarket but are increasingly being used by international OEMs. The legal age of leading international automobile OEMs have established global sourcing offices, R&D centers as we ll as regional headquarters in China. 11 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Finally, the Chinese government continues to play an important role in driving the industry.Post-WTO accession concessions have resulted in lower import tariffs, with child(p) international automotive firms more access to the domestic market. Beijing has actively encouraged the establishment of JV R&D centers with preferential tax policies designed to facilitate the transfer of knowledge and technology. The government has pledged substantial funds towards automotive technology innovation, upgrades, and the R&D of alternative-fuel automobiles and components. They are also setting restrictions and quotas requiring all vehicles that are used for government use to be produced domestically.Industry Consolidation China is determined to restructure its automotive industry, with the hopes of ever-changing the market from many fragmented manufactures to two or th ree supreme domestic firms. According to the State Councils regulations released in early kinsfolk 2010 which called for greater industrial consolidation, the automobile industry was at the top of the itemisation of targeted sectors. The State Council set the goal of reducing the number of major automakers who are responsible for 90% of domestic sales output, from 14 to 10.Under the plan two or three companies would dominate the industry, responsible for producing more than three million vehicles annually, while four others would have annual output capacity of 1. 5 million units. The State Council named the following four groups as potential industry heavyweights, urging them to take advantage of consolidation opportunities FAW Dongfeng Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Flagship Domestic Automotive Companies Shanghai Automotive (Group) Corp (SAIC) Industry ? Headquartered in Shanghai, it is one of the top three auto groups in China.? Mainly engaged in the manufacturing, sales and R&D for passenger cars, commercial vehicles and auto components. ? The company is ranked 223 of the Fortune 500 companies with consolidated revenue of US$33. 6 billion in 2009. ? sell over 2. 7 million vehicles in 2009, making up almost 20% of Chinas market. ? SAIC invested over 10 billion RMB on new model development in the past 3 years, and will launch hybrid and electric vehicles in 2010 and 2012. ? Acquired Nanjing Automotive (Group) Corp (NAC) in 2007 and became the largest manufacturer in China with a consolidated annual production of 2 million units.? SAIC has opened branches in the USA, Europe, Hong Kong, Japan and Korea. It has established a long-term cooperation with GM and Volkswagen. SAIC and GM formed Shanghai GM and the goat god Asia Technical Automotive Center (PATAC) in 1997 and launched 8 additional China joint ventures, including SAIC-GM-Wuling, GMAC-SAIC Automotive Finance Company, and General Motors SAIC In vestment Limited. ? Shanghai Volkswagen (a joint venture between SAIC and Volkswagen AG) recently announced it will build a fifth assembly plant in Jiangsu. The plant will have an annual production capacity of 300,000 vehicles and start operation by the end of 2012.12 SAIC and Changan. Additionally, it named four regional leaders that it encouraged to consider regional consolidation Beijing Automobile Guangzhou Automobile Cherry and Sinotruck. entirely of these companies are passenger vehicle manufacturers with the exception of Sinotruck which manufactures heavy-duty trucks (sales of over 125,000 units in 2009). Industry analysts predict that the coming wave of M&As within the automotive sector could see a deal that breaks the USD 1 billion mark, more than doubling the largest deal to date which was the USD 450 million purchase of General Motors.Nexteer steering components unit by a joint venture established by Beijings Tempo Group and the Beijing government. Global intricacy As t he leading automotive market, China automakers are accelerating global fault to increase their presence in the overseas market. Zhejiang Geely Holding Group (one of Chinas largest self-sufficing carmakers) recently completed its acquisition of Ford Motors Volvo brand for USD 1. 5 billion. This is an indication that Chinese automakers have begun to name the power of strong brand reputation.Geelys Volvo bid is the largest takeover in Chinese auto industry and will provide a variant for Chinese carmakers to expand aboard and acquire companies with a strong reputation. Beiqi Foton, Chinas leading commercial automaker followed Geelys step and announced its global expansion plan. This includes setting up a production baseborn in Russia by 2012 with an annual capacity of 100, 000 vehicles and building five other plants in Brazil, India, Russia, Mexico and Thailand before 2015.New force Vehicle Focus of future(a) Development High oil prices, air pollution, and Chinas allegiance to r educe carbon emissions have led the automotive industry to research alternative energies. The Chinese government has launched policies and incentives to stimulate the development of new slide fastener vehicles, including electric (hybrid, plug-in and battery), fuel cell, and hydrogen-powered. China has identified new zip fastener vehicle as one of the seven emerging strategic industries. Many idea China will rifle the worlds largest new force vehicle market by 2020.The Energy Saving and New Energy Vehicle Development Plan (2011-2020) and the Automotive Industry 12th Five-year Plan (2011-2015), two of the key policies expected to guide the development of new vim vehicle industry, are expected to come out by the end of 2010. The Ministry of Industry and Information Technology (MIIT) is the principal drafter of these plans which are later submitted to the State Council for approval. The plans set the following key targets for the new vim vehicle industry by the end of 2020 ?In th e following five years China will aggressively support the development of key components of energy cost-efficient and new energy automobiles. For electric motors and 13 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) ? ? batteries manufacturers, China hopes that three to five backbone enterprises will emerge with their combined market share exceeding 60%. China will produce 5 million new energy vehicles and become the number one producer of new energy vehicles in the world by 2020 Average fuel economy of passenger vehicles will be 4.5 L/100 kilometers by 2020, the same as European standards. The plans will become the backbone policy for the entire new energy vehicle industry, as it provides direction for public funding, sector focus and industry structuring. Most important to pay attention to is that Chinese companies are likely to reap the most benefits from these structured strategies. To support indigenous innovation, the Chinese governme nt has stated that the two or three key new energy vehicle component manufacturers will most likely be domestic companies, either state-owned or private.2 REGULATORY OVERVIEW ? Government tariffs on automotive imports are in compliance with WTO rules, but stripped-down capital barriers still exist for foreign investors. The government has created some incentives to spur R&D partnership, and regulations for foreign distributers have been eased somewhat. The government has plans to implement higher auto emissions standards for new cars in China. So far four regions have implemented China IV emission standards (Beijing, Shanghai, Nanjing and Guangdong Province).The Chinese government views the development of the new energy vehicle industry in China as a top priority and has introduced a wide range of subsidies and policies in its favor. ? ? Chinas automotive industry supply chain is very broad with many components such as import and export, manufacturing, environmental security syste m, technology upgrades and quality control. As such, the industry is regulated by a range of government organs, both at the national and sub-national level. The below chart illustrates the key central level regulators of the automotive industry, and their relevant responsibilities.14 Chinas Automotive Sector Prepared for IEICI Updated November 2010 (Original April 2009) The automotive industry is subject to a number of laws and regulations. The key regulations that are relevant to Israeli companies are addressed below. 2. 1 FOREIGN ACCESS TO THE CHINESE AUTOMOTIVE MARKET Trade The Chinese auto sector is competitive and has a well-developed supply chain. Imports of foreign-made auto parts will likely decrease as OEMs continue to increase their local capacities. At the same time, higher quality Chinese auto parts are increasingly being integrated into the global supply chain. before long the import tariff for whole vehicles is 25% and for automotive components is 10%. 15 Chinas Autom otive Sector Prepared for IEICI Updated November 2010 (Original April 2009) Investment Foreign businesses must meet a number of requirements in order to access Chinas automotive market. The Chinese government has set requirements for minimum registered capital when a firm wants to establish an automotive facility which is RMB 500 million (USD 75 million3) for automobile financing, RMB 500 million (USD 75 million) for engine production and RMB 10 million (USD 1. 5 million) for an R&D center.All projects are subject to government approval. Foreign firms looking to produce passenger vehicles cannot set up WOFEs, but must partner with a local Chinese firm in the form of a JV, with the foreign partners stake limited to 50%. On the other hand, China offers fiscal and financial incentives to attract foreign investment in R&D strategies as part of the central governments strategy to speed up the transfer of international technology. China currently provides tax incentives for enterprises e ngaged in research and development activities, allowing R&D enterprises to generalize 50% of R&D expenses.Suppliers are most often require to localize or invest in China and Israeli companies evoke in tapping into the vast Chinese market will need to consider establishing a local presence. IPR Issues in China While the protection of cerebral property rights (IPR) remains a contentious issue for companies in China, the countrys laws and regulations have progressed considerably in recent years, with the large majority now compliant with requirements of the WTOs TRIPS agreement.The main challenge surrounding IPR protection in China is the lack of effective enforcement of the existing regulations. Enforcement issues arise from a range of root causes, including the relatively recent introduction of IPR legislation and creation of intellectual property in general, the absence of a fully independent judicial system, and provincial officials often protective attitude towards local bus iness organization creating counterfeiting industries.While most foreign companies considering business operations in China may have to accept an unavoidable degree of IPR infringement, there are nevertheless a number of actions that a company can take in order to limit their IPR-related risk ? ? ? Ensure to register your patents, copyrights, or trademarks with the relevant bureaus Ensure that your trade or other.