Congressional Research Service, China’s Impact on the U.S. Automotive Industry, April 4, 2006

Summary
China is both the fastest growing motor vehicle market and the fastest growing vehicle producer. Output and sales have grown from less than two million vehicles annually before 2000 to nearly six million vehicles in 2005. In the number of vehicles that it manufactures China has passed Korea and France, is on pace to overtake Germany, and would then trail only the United States and Japan. A disproportionate share of China’s output has always been heavy vehicles, but since 2000, China’s growth has been led by the increase in passenger cars. They now account for about half of Chia’s production.

China exports or imports few motor vehicles: less than 200,000 of each. Exports are growing much more rapidly than imports and are mostly light trucks shipped to developing country markets in Asia, Africa and the Middle East. China’s industry has developed extensively with the aid of foreign direct investment, unlike those of Korea and Japan. This investment has been from major international automobile manufacturers, led by General Motors (GM), that are unlikely to promote Chinese exports in competition with their own products in other markets. As a consequence, the Chinese companies that have expressed an interest in exporting cars are those who are less dependent on such cooperation and may struggle to meet safety and emission standards in industrial countries. Most experts do not see a high volume of exports from China into these markets in the near future.

By contrast, Chinese auto parts exports are already making inroads into the United States. While U.S. motor vehicle trade with China was insignificant in 2005, the United States imported $5.4 billion in parts from China, while it exported about one-tenth of that amount. China accounted for about 6% of U.S. auto parts imports in 2005, but the amount has quadrupled since 2000. Many of these imports are aimed at the aftermarket, as most of what China now exports to the U.S. market are standard products such as wheels, brake parts and electronics. But with high rates of investment in China by the leading U.S. manufacturers of both cars and parts, major companies such as GM look to increase sourcing from China.

The Bush Administration has noted that the new Chinese auto policy announced in 2004 eliminated practices not compatible with China’s commitments as a member of the World Trade Organization (WTO). However, this policy maintains a limit of no more than 50% ownership by any foreign investor in a motor vehicle manufacturing joint venture in China. Moreover, the Administration has filed a WTO case alleging discriminatory Chinese application of tariffs on automotive parts. Congress has been concerned with broad policies giving Chinese exporters unfair trade advantages. The Senate approved a bill, added as an amendment to other legislation, that would place a high tariff on Chinese imports unless China revalues its pegged exchange rate (S. 295). Further action has been postponed on this  measure. Legislation to allow U.S. producers to bring countervailing duty cases against Chinese firms subsidized by their government has been approved in the House (H.R. 3283), and a new law has tightened rules against trade in counterfeited goods (P.L. 109-181). This report will not be updated.

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