Industry Insight

On April 22, China Economic Monitoring Center of China National Bureau of Statistics and Sinotrust International Information & Consulting (Beijing) jointly release the "2010 Q1 China Automotive Industry Climate Index."

1. The Comprehensive China Automotive Industry Climate Index registers 105.8 points

The China Automotive Industry Climate Index records 105.8 points in the first quarter of 2010 (2001=100), up 3.8 points over the fourth quarter of 2009. In 2009, the economy of China overcame the financial crisis successfully and attracted worldwide attention. The automotive industry developed rapidly with production and sales volumes surpassing the U.S., becoming a key power promoting the stable recovery of the economy of China and making China become the world number 1 auto market. In 2010, under the influence of supportive policies from the government and the improving external environment, the Automotive Climate Index continues to rise and makes a good start.

2. The Pre-warning Index of China Automotive Industry records 133.3 points

The Pre-warning Index is an important indicator reflecting the climate of the auto industry. In Q1 of 2010, the indicator reaches 133.3 points, 16.6 points higher than in Q4 of 2009, showing a recovery trend in the four consecutive quarters and experiencing a fast increase. The index is in the "Yellow Zone," indicating that the automotive industry has already recovered to normal growth after being beaten by the financial crisis in the second half of 2008.

3. The Entrepreneur Expectation Index of China Automotive Industry registers 115.6 points

The Auto Industry Entrepreneur Expectation Index reflects automakers' perception of the current market situation as well as their future anticipations. The index registers 115.6 points in Q1 of 2010, down as much as 10.7 points from Q4 of 2009, but still higher than 100 points. This indicates that entrepreneurs are basically satisfied with the current market status and are still optimistic about the overall market operation in Q2.

4. The Dealer Manager Index of the China Automotive Industry registers 97.9 points

The Dealer Manager Index demonstrates dealers' perception of the current market situation as well as their future anticipations. The index registers 97.9 points in Q1 of 2010, below 100 points for the first time in history and 19.5 points lower than in the previous wave, showing that dealers are not that optimistic about the future market trend.

Characteristics of China's Automotive Industry in Q1 of 2010

In summary, the following trends were observed during the survey: First, the index of Q1 continues to increase, hitting an historic record high. Secondly, the indicators of production, sales, profit, tax, etc. all record increases to different extents. Thirdly, the capital occupation rates for finished Products and accounts receivable rise quickly but their proportions in sales revenue are decreasing, indicating that the inventory and account sales are in a normal condition. Finally, entrepreneurs are optimistic about the market development, but the Dealer Manager Index records a significant drop, revealing that the over-heating market in the second half of the previous year has somewhat cooled down.

Forecast of the China Automotive Industry Climate Index in Q2 of 2010

According to the survey of automakers and dealers, we should pay attention to the following three issues. Firstly, automakers predict that a possible surge in raw material and energy prices will add to cost pressure. 60.0% of automakers report that the prices of the raw materials and energy they purchased in 2010 Q1 are higher than those purchased in 2009 Q4, and 80.0% think the prices will go further up in 2010 Q2. Secondly, dealers' sales close rates show a decline. According to the survey, 71.5% of the respondents report that in 2010 Q1 their sales close rate experienced a decline from 2009 Q4. However, when asked to predict their sales close rate in 2010 Q2, 41.8% think the rate will rise. The figure (41.8%) is nearly 20 percent points higher than the proportion of the people who think the situation will deteriorate. Thirdly, dealers are a bit overstocked. Nearly 40% of the dealers report they are somewhat overstocked and more than 50% think their inventories will continue to increase in 2010 Q2.

In conclusion, the price surge of raw materials and energy will add to automakers' costs, and meanwhile the decline in sales close rates and the increase in inventories will bring down vehicles' prices, which in some degree will reduce automakers and dealers' profits. In addition, the "cooling off" of the passion of dealers will soon pass on to automakers and finally slow down the fast growth of auto production and sales.

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Low carbon, is the currently hottest word; low-carbon house, is the currently most popular propaganda in the real estate; so, where is low-carbon house? When will low-carbon revolution win success? Is low carbon a slogan or an action? During the theme salon launched by Ihome, Wei Guangchuan, Research Director of Sinotrust Marketing Research Services, indicates that low-carbon house is determined by fine decoration, house buyer and market. Meanwhile, the real estate industry shall strictly examine and standardize the application of low-carbon concept, so that standards are made available to boycott the overabundance of low-carbon concept.

Low carbon-based fine decoration

Fine decoration is the result of the industrialization of residential buildings. Also, it is the best way to popularize the low carbon concept in the real estate industry. On the premise that owners' demand could be met e, the developers can procure and construct at one time, more costs could be saved and the request for low carbon could also be realized.

Both high-end villas and transitional apartments are the future of the industrialization of fine decoration. There is still a long way to go for the former due to such factors as individualization; however, the fine decoration is more suitable for the latter thanks to its relatively high conversion rate and dweller's lower demand for decoration. Also, such fine decoration is more and more welcomed by the owners.

The market is crucial

Firstly, low carbon is the must-be process for the industrialization from high consumption to low consumption, and then towards globalization. As a useful control method, low carbon is generalized as energy-saving and environmental protection. However, difference still remains more or less between low carbon and environmental protection. Low carbon is not equal to low pollution. For instance, when the solar energy is adopted, larger pollution may be caused if the solar cell is not properly disposed. Therefore, even if low carbon is realized in production and architecture, it is also crucial to properly guide the industrial development at the later stage.

Meanwhile, both production and use shall be considered to achieve low carbon. At present, low carbon mainly refers to that in use rather than in production. If low carbon emission could be made available for the constructional materials, it will be easier to achieve the low carbon standards in the real estate industry.

The success of low carbon is not determined by our technique but the market and house buyers. For example, the solar energy is adopted by many people because it substantially saves a lot of living costs. Consumers shall be guided by the government in this respect, so that the merits of low carbon could be known by the public. Thus, the development thereof is surely boosted. As both benefits and policies are taken into account for guidance, the propaganda of low carbon will be more successful.

Use of standards to boycott overabundance of low carbon concept

Now low carbon is fashionable around the world. For the real estate industry, the application of low carbon concept shall be strictly examined and standardized. Otherwise, the low carbon concept may be overabundant after half a year or a year. The extremely adverse effect will be caused to the development of real estate industry.

The state shall construct some low carbon demonstration areas, so as to standardize the concept of low-carbon house, offer certain standards for the market and deliver the low carbon lifestyle. Meanwhile, the overabundance of low concept shall be restricted. In addition, the government subsidy shall be used to guide the market. Thus, low carbon could be translated into real products from current concept propaganda.

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After the glory history of computer operating system and software, Microsoft isn't always proceeding smoothly in its non-monopoly fields. After answering the competition of the initial state in a hasty manner, Microsoft's strength in carving out new business is gradually revealed.

From Windows Live to Bing search engine, from Xbox to Windows Phone, Microsoft maintains sufficient expanding power in the diversified and severely competitive IT application market. Upon its mighty accumulation of software and user experience, Microsoft adopts a backward strategy through following leading competitors; also, by virtue of its advantage in integration and development, Microsoft mixes its own innovative technology and surpasses competitors in the final. On the strength of fruitful results made by such new and existing rivals as Apple in the field of smartphone, Microsoft recently launched the strategy towards smartphone based on Windows Mobile operating system in an all-round manner.

Only smartphone is featured with bright future but severe competition. In view of the core software of smartphone - operating system, Microsoft's Windows Mobile is faced with cut-throat competition from Nokia's Symbian, Blackberry's RIM and Apple's iPhoneOS, etc. Moreover, Microsoft couldn't enjoy market supremacy as a software provider against three big rivals with powerful ability of software and hardware integration, so it could merely turn to hardware manufacturers for cooperation. Therefore, Microsoft must do something worthwhile when Android made by its old rival Google is joined. On the one hand, at MWC2010conference in February, Microsoft launched a tailor-made smartphone based on the operating system of the next generation - Windows Phone 7 in a high-profile manner; on the other hand, at the beginning of this April, Microsoft unfolded the magic veil of its self-owned mobile phone – Kin of the original "Pink" project.

Similar to the combination of Google's Android and Nexus, Microsoft also adopts portfolio strategies, i.e., a tailor-made mobile phone based on its operating system + a self-owned mobile phone. With a view to commercial strategy, the separation of self-owned brand from mainstream operating system could ward off benefit conflicts to the partner for custom-made mobile phone arising from own brand; with a view to business development, the separation of custom-made system from own brand could efficiently bring Microsoft's advantage in software development and user service into full play. OEMs will be more strictly requested for Windows Phone 7 mobile phone, so as to lower divergence on appearance and style and focus on the interfaces of operating system and software. Several functional "hub" modules, namely, Phone, Office, Text, People, Games and Marketplace, etc are provided with concise "function blocks". Though there is not enough information on Kin at the moment, we can find that Kin follows totally different route from WP7 mobile phone, which lays emphasis on fashionable looking as well as entertainment services highly wed with Xbox, Zune and Facebook.

The smartphone terminal featured with personal life is developed towards software, services and user experience rather than performance, hardware and appearance. Microsoft's portfolio of WP7+Kin covers a lot of user services relevant to software and Internet business, which could be deemed as a platform integrated with the operating system, Live, Xbox and Bing, etc. Although it is a bit late, smartphone undoubtedly makes up for the last and most important link in Microsoft's huge business chain. In a word, Microsoft's smartphone embodies its brand-new development strategy in the post-software era. Strategy I is oriented to software service and user experience, which greatly reflects Microsoft's actual strength in the design of software system, user experience interface and information service. Also, Microsoft attempts to join by virtue of its core platform of mobile operating system as well as excellent one-stop experience on software, hardware and service. Strategy II is oriented to open platform but closed custom-made mode. WP7 manifests Microsoft's open strategy on the integration of the core operating system and platform business, so as to achieve upmost enhancement on user value under the context of booming ecological environment of industrial chain; while Kin manifests Microsoft's tradition in design and custom-made mode. Thus, tailor-made mobiles phones and services featured with more original style of Microsoft are appreciated by its most faithful consumers.

In the future market of smartphone, appearance and performance are not the only indexes any longer, because smartphone's individuality and life property indicate that the mix of service and user experience will be one of the most decisive indexes in the next stage. If Microsoft could make full advantage as branded software and service provider and satisfy the development trend and cooperative strategy of intelligent terminal in the new era, is there any doubt that Microsoft could catch up with and surpass the current smartphone field? Let's wait and see.

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While the auto market in China outcomes the tough situations and grows at a rapid pace, there is increasing pressure from the transportation and environment problems brought about by the fast-growing car population. Today, we have already on the way to enter the auto society, but have we made sufficient preparations for the arrival of the auto society and have we had the engine power to supply the sound circulation of the auto society?

The auto consumption environment can be divided into "hard environment" and "soft environment." The former includes road transportation, parking facilities, energy supply, etc., and the latter mainly concerns auto consumption policies as well as auto finance service, auto service system and auto consumer rights protection, etc.

In view of the hard environment, as of 2008, the total road mileage had reached 3,730,000km, in which, the highway mileage was 60,300km, taking the second place in the world. However, the road transportation construction is far from sufficient and the quality of the facilities is not up to standards. The specific problems are displayed by the poor quality of pavement of most roads, poor trafficability, narrow city roads, indicating that a high-efficiency urban traffic system has not shaped up. In the meantime, the construction of trans-regional roads is not improved and the toll fees maintain at a high level.

In recent years, some cities are making efforts on and have made several attempts at improving the hard environment of auto consumption. However, most of the measures are related to "restrictions," for example, high license plate fees, traffic and road restrictions, etc. All this fails to solve the traffic issue from the root.

In addition, many tier one and two cities do not take strategic vision on city planning. Some cities adopt the "spreading-out" development mode which results in the growing difficulty in traffic dispersion in cities. The insufficient parking areas in urban communities and the seriously unbalanced ratio of parking stands to residences directly contributes to the difficulty in parking and high parking fees. The growing parking fees increase the car maintenance costs of car owners but this provides no help for the ease of the parking problem. There is a dramatic conflict between the parking environment and city planning.

In view of the "soft environment," the government issued some preferential policies in 2009 to encourage car consumption, but the current auto tax system, the heritage of the planned economic system and the economic transition, still has the tendency of "retraining purchase and encouraging consumption."

Under the general trend of energy conservation and emission reduction, 7.5%-10% of purchase tax is charged, still higher than in European and American countries. Both car purchase and use taxes are imposed to consumers. Unlike many developed countries, Chinese car consumers are bearing high car-consuming spending with relatively low incomes.

In terms of auto finance services, the imperfect auto consumption credit system adds to the risk of auto consumption credit of banks. To lower the risks, banks find no way but set up a high threshold for loans. This year, the speculation that "the Central Bank will tighten the control over consumption- and credit-related loans" has been reported repeatedly, and the minor adjustments in the currency policy will probably lead to consumer credit contraction. Also, applying the housing accumulation fund in car consumption that has been appealed for years can hardly become reality in the near future, and purchasing a car in full payment is still a dominant trend.

With the growth of the auto markets in tier two and three cities, automakers are expanding their distribution networks in these areas with the hope that these markets can drive the rapid growth of the car market as a whole. However, the population and car population in tier two and three cities still have a large gap with tier one cities, and the problems with lagged city planning, limited city scale, traffic congestions and environmental pollutions bring huge challenges to the sound development of these cities.

In face of the financial crisis, auto consumption brings hope to economic growth, but behind the growth is the hidden problems with the gradually deterioration of the car consumption environment.

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