When Apple's Tim Cook recently stepped into a sedan car from Didi Chuxing – China’s fast-growing ride-sharing company – he probably sat back and heaved a sigh of relief. Apple had just invested $1 billion in the company and in so doing secured a piece of China's futuristic car business, in which automakers and tech companies are creating a so-called "internet of vehicles".
This clunky phrase describes a brave new marketplace where internet-connected cars drive autonomously, entertain their passengers, interact with other vehicles and navigate happily by themselves. Platforms such as Apple's CarPlay and Google's Android Auto have started to make the concept a reality, but many analysts believe China is where the real action will be played out. Foreign – non Chinese – companies beware. Find Chinese partners quick or face life out in the cold... and unconnected.
Two major trends combine to make China this influential innovation hub. Firstly, the sheer size of the car market. With 24.6m cars sold in 2015, it stands alone as the biggest in the world. Secondly, the average Chinese consumer is young, connected and demanding. An amazing 60 per cent of Chinese new car buyers would switch brands if it meant improving the all-important level of connectivity, according to a 2015 McKinsey survey.
Sixty per cent of Chinese new car buyers would switch brands if it meant improving the all-important level of connectivity
Size really does matter
May is traditionally boom time in the Chinese market, when gleaming new car models start to arrive at dealerships after the country’s biggest motor show, in Beijing. And this May was no different with sales hitting a five-month high and car makers delivering a total of 1.79m passenger vehicles to dealers – up 11 per cent year on year, according to the China Association of Automobile Manufacturers (CAAM).
The figures are remarkable, especially when you consider that until 1984 it remained technically illegal for individuals to own a car and that low personal wealth meant sales did not take off until the mid-2000s. The growth is positive for global auto makers, but many observers remain cautious amid fears of a prolonged economic slowdown for China.
Until 1984 it remained technically illegal for individuals to own a car and low personal wealth meant sales did not take off until the mid-2000s
Policymakers in Beijing share this view and are trying to support the industry with measures that include a halving of the 10 per cent purchase tax on small-engine cars and favourable credit policies. Ironically, the government is even trying to encourage demand for new cars by boosting the demand for second-hand ones. Why buy a new vehicle, the logic goes, if you can’t sell the old one?
Beijing is also trying to promote the design and production of more electric cars in a bid to combat pollution. Generous subsidies are proving very attractive. So much so that companies with no car-making experience are rushing to make green and energy-efficient vehicles. China Dynamics Holdings, for example, has switched its core business from metals trading to electric cars. So too have Gree – an appliance maker known for its air conditioners – and the steel maker Fangda Special Steel Technology. Chinese industrial power is thinking electric.
Companies with no car-making experience are rushing to make green and energy-efficient vehicles
Then there are the powerful local governments that are investing billions of dollars in this burgeoning market. The figures are eye-watering. More than 30 electric car projects with a total investment of more than $15.2 billion have been announced in the past 18 months, according to CAAM.
Made in China 2025
It is in this vital and rapidly-evolving market that the so-called “internet of cars” is developing fast – a new automotive ecosystem that encompasses car making and digital technology. And Chinese companies, often backed by the government and its high-profile Made in China 2025 initiative, are piling in. Search-engine giant Baidu, for example, has persuaded automakers including Hyundai, BMW, Mercedes, Ford, Audi and Volkswagen to use CarLife, its answer to CarPlay, in their Chinese models.
China is backing its domestic companies – especially those working on certain technologies – to become global leaders. It’s a powerful position. “For foreign carmakers, the danger is that this ecosystem will lock their products out of China,” wrote Asia-based Bloomberg columnist Adam Minter in a recent opinion piece. “A more alarming possibility is that as China's auto industry expands overseas – notably to Africa and South-east Asia – the ecosystem will follow, potentially shutting competitors out of other markets, too.”