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Xia Xu-Fees

Xia Xu-Fees

Managing Director, China Business Upgrade | Consulting and Training

Market Developments in China Chinese Market and the Light Metals Industry

| Author / Editor: Xia Xu-Fees / Nicole Kareta

Why is China such an attractive location for the automotive industry and what impact does this trend have on Chinese foundries and the foundry industry outside Asia? While China is facing some challenges, there are opportunities for non-Chinese production plants.

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One in three motorized vehicles originates from China. This also affects the growth of China's foundries.
One in three motorized vehicles originates from China. This also affects the growth of China's foundries.
(Source: gemeinfrei / Pixabay )

Coronavirus: Current Forecasts

What influence does the Coronavirus have on the economic situation in China?
It is more generally expected that the impact of Coronavirus on Chinese GDP growth in the first quarter will be 2-3 percentage points, and the impact on annual growth will be around 0.5 points. Suppressed delayed demand and production will show a V-shaped recovery after Coronavirus is under control, and the GDP growth rate forecast for 2020 might be slightly adjusted to 5.5 %.

What could be learned from the negative effects of Coronavirus on the global supply chains?
The global supply chains show their weak points while facing the sudden outbreak of Coronavirus, however, the interests of various countries are deeply blended in each other, it is neither realistic nor wise to stop the globalization. The appropriate time might be coming now to think over the manufacturing philosophy of “just in time” and “zero inventory” in the automotive and other industries. Furthermore, the strategy “China plus one” could be a sourcing alternative to diversify supply chains.

Which measures would be taken in China to stimulate the economic breakout?
Based on the analysis of the economic impact of Coronavirus, the measures for the post-epidemic China's economic breakout will be based on the following dimensions:

  • Investment in infrastructure and new infrastructure: It would be a policy choice to increase traditional infrastructure investment on a large scale, in order to stimulate the economic development. The "new infrastructure" will involve the construction of such as 5G base stations and data centers.
  • Continue to reduce taxes: In order to increase the vitality of enterprises, especially small and medium sized enterprises, the government will help them out of the economic downturn accordingly.
  • Subsidize low-income groups and stimulate consumption potential: After Coronavirus is under control, it is expected that the government will gradually introduce some easing policies to boost domestic consumption.

    • More About Coronavirus

    Since 2010, China's GDP growth rate has fallen continuously. This steady decline is seen as the result of a fundamental reorientation of the Chinese economy by the government. Instead of relying on exports, heavy industry and debt-financed investments, the economy is suggested to be based in future on stronger domestic consumption, innovation and services. According to a forecast, China will have transformed itself from the world's largest producer country in the past to the world's technologically leading country in 2049. This development shall be driven primarily by industrial structural transformation, innovation and the improvement of "class instead of mass". Nevertheless, global automobile production has shifted to Asia. General conditions such as 1.4 billion consumers, high economic growth, rapid urbanization, rising incomes, extensively developed supply chains, a favorable infrastructure and a still lower rate of car ownership per household enable the continuing boom of the Chinese automotive industry.

    China's Foundry Industry Unable to Keep Up

    The fact that one in three motorized vehicles originates from China also affects the growth of China's foundries. China's automotive industry has developed rapidly and has become the most important application area for castings. The use of castings in the automotive sector accounted for almost a third of total domestic demand for castings by 2016. China's foundry industry is large but not strong and the overall innovation intensity is insufficient. It represents a bottleneck in the development of engines and high-quality components.

    The development of the Chinese foundry industry currently faces four main challenges:

    • because of the large number of small enterprises, it is difficult to achieve the effect of economies of scale
    • the casting quality often does not meet the requirements of industry standards
    • the technological level and equipment in Chinese foundries is relatively underdeveloped
    • China's foundry industry does not produce environmentally friendly and has a high energy consumption

    It is indispensable that Chinese foundries take necessary measures in many areas to modernize and become more competitive on a global scale. Conversely, these challenges represent an opportunity for foundries located outside China: Complex automotive components are difficult to cast precisely and place higher demands on the production of the entire die casting industry. This means that in die casting, more attention is generally paid to quality than to quantity. Foundries outside China therefore need complex and professional technologies, intelligent machines and systems to produce complex components in the casting industry.

    Key Industries Boost Light Metal Sector

    China's growth is not only driven by the automotive industry, but also by sectors such as aerospace equipment, high-tech ships, railway equipment, medical devices and agricultural machinery. In such key industries, which are important drivers of "Made in China 2025", light metals are indispensable due to their special properties.

    Lightweight design is the trend in aircraft industry, the conventional automotive industry and e-mobility. With the market penetration of electric cars, the use of light metal castings will additionally increase significantly in China, offering new opportunities for the light metal casting industry. Green casting is also a development trend in the future casting industry. With the transformation of China's national economic development to adapt and optimize the industrial structure, in order to improve efficiency and environmental protection, and promote policies at the industrial level, the transformation and development of the foundry industry is also inevitable. This means at the same time a challenge and an opportunity for the German foundry industry.

    Industry 4.0 in China

    In the era of digitization, information technology is being integrated intensively into the traditional casting industry. Remote design, intelligent systems for the production of castings, 3D-printing, other rapid prototyping systems, robotics and predictive maintenance will drive the process of transformation and upgrade forwards in the casting industry.

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    About the author

    Xia Xu-Fees

    Xia Xu-Fees

    Managing Director, China Business Upgrade | Consulting and Training

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