Reading 8a

Reading 8a - Chinas Automotive Industry 2005 Larry D. Qiu...

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China’s Automotive Industry 2005 Larry D. Qiu HKUST Executive Summary This study presents an analysis of China’s automotive industry. China began its economic reforms and adopted its open door policy in 1979. The domestic automotive industry was very weak before the reforms. In the 1980s, there was a rapid expansion of the industry. The number of automobile producers soared. However, the market was heavily protected from international competition, including imports and foreign direct investment. In the 1990s, the industry was dominated by a few large Sino-Foreign joint ventures. However, the automobile market is now fragmented. Entering into the 21st century, China has opened its doors wider and wider to foreign competition. While the domestic automakers and joint ventures have had 10 to 20 years to develop themselves, there will still be big shocks to the industry and market once all trade and investment barriers have been removed. China will maintain robust economic growth for a long period of time and the automobile industry will benefit a great deal from this. It is important for a company in this industry to understand fully the history of this industry, to anticipate the possible changes in the future, and to formulate good strategies for the company’s development. Correspondence to : Professor Larry D Qiu, Department of Economics, School of Business and Management, Hong Kong University of Science and Technology, Kowloon, Hong Kong. Email: larryqiu@ust.hk Acknowledgement : I am extremely grateful for help from Mr. Kelvin Wong, graduate student in the Department of Economics, HKUST. Mr. Huayang Yu also helps to collect information.
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1 Table of Contents 1. Introduction 2. A Brief History 3. Analysis of the structure of China’s Automotive Industry 4. Beyond the Five Forces 5. Foreign Competition and the WTO 6. Concluding Remarks Appendix References
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2 1. Introduction China began its economic reforms and adopted its open door policy in 1979. Even since then, China’s economy has grown at about 10% per year on average. Chinese people have enjoyed great improvement in their standards of living. As a result, demand for private cars has increased dramatically. China’s lucrative domestic car market attracts domestic car manufactures as well as giant foreign car companies. All of them want to enter this market and acquire a market share. Although China had a domestic car industry before 1979, the domestic car producers were very inefficient and produced low-quality cars. Facing market reforms and import competition, the industry has gone through significant changes since the reforms began. China’s entry to the WTO has brought more and more competition to this industry. What is the current situation of the automobile industry in China? How will industry competition, the market structure and firms’ competitiveness change? In this report, we use Michael Porter’s Five-Force Model to analyze China’s automobile industry to answer these questions. With a full understanding of China’s
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Reading 8a - Chinas Automotive Industry 2005 Larry D. Qiu...

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