Small Towns Can Yield Big Revenues

Rural Markets Are Becoming a Powerful Growth Engine of China's Auto Market, Says Yang Jian

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SHANGHAI ( -- Stay in so-called tier one Chinese cities such as Beijing and Shanghai, and it's hard to grasp what is really going on in the country's auto market.

During the long vacation, running from October 1 through October 8, I went to see my parents and in-laws, all of whom live in small cities in east China. I was deeply impressed by the fast and healthy growth of the local auto markets.

Yang Jian
Yang Jian
My parents live in Zhenjiang, a city with a population of about 700,000.

My in-laws are in Danyang which only has about 200,000 people. By Chinese standards, they are both small cities.

In both cities, I was struck by the exuberance of local new car sales.

On the streets, I often bumped into cars driving around without license plates -- these cars are fresh from the dealerships and have yet to be registered with the local transport regulation authorities.

In some of the dealerships I visited in each city, I was told tthat o buy a new car one has to wait for a month or two. "The demand is growing so fast that the plant can't boost its production capacity at the same pace," said a saleswoman at an FAW-Volkswagen dealership in Zhenjiang.

People living in Beijing and Shanghai have the impression that China's auto market is all dominated by international brands, especially German and Japanese brands.

But that's not true. Thanks to their price competitiveness and also years of strenuous effort in brand building, domestic Chinese brands such as BYD and Great Wall are winning more consumers than before.

This is especially true in small cities where a fair portion of cars on the streets are domestic brands (Statistics from the China Association of Automobile Manufacturers show domestic brands account for more than one-third of new car sales in China these days).

Two years ago, the taxicabs in Zhenjiang and Danyang were mainly the first generation of the VW Santana and Fukang -- a locally built model developed by Citroen in the 1990s.

These days they have been upgraded to the Santana 3000, Kia Cerato and Hyundai Elantra. This also must have contributed hugely to local new car sales.

Smaller cities have taken over from major cities to become the main growth engine of China's passenger vehicle market, according to figures recently released by an executive working for Shanghai Automotive Industry Corp., at a parts purchasing conference held in Beijing in late September.

In the first eight months of this year, auto sales in Beijing and Shanghai only increased 27.4% from a year earlier, less than the market average of 30%. Sales in other major domestic cities went up 31.1%.

Yet auto sales in small cities surged more than 40%.

Meanwhile, small cities currently account for 48.2% of the total auto sales in China, up from 42.5% in 2007.

Despite fast expansion now, auto markets in small Chinese cities still have huge growth potential. Car ownership in these cities is believed to be below 20 vehicles for every 1,000 people.

My brother who lives in Zhenjiang wanted to buy a car, but his wife talked him into buying a new apartment first.

But he is still thinking about that car. "I should be able to save enough to buy a car in two years' time," he told me during the holiday.

Yang Jian is the managing editor of Automotive News China, which first published this article.

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