China’s trailer market: Generation shift

China’s buoyant economy has entered a phase of consolidation and re-tooling as the market is outpacing the age of mass production. The new China is gearing up for an innovation-driven future – and the commercial road transport sector is right in the middle of that historic changeover.

The People’s Republic of China can look back at a decade of uninterrupted growth that placed the country’s economy among the most buoyant in the world and, at the same time, fuelled the gearing up of the commercial road transport industry – both domestically and on a global level. In 2010, the manufacturing juggernaut even surpassed Japan in terms of nominal GDP, making the Chinese economy the second largest in the world.

In 2011, however, the Middle Kingdom has entered a phase of consolidation and re-organisation to manage the transition from a productivity-focused economy to an innovation-driven one that is more likely to endure economic fluctuations on a global level.

But, China is paying dearly for the long-awaited shift, reporting the first drop in economic growth since 2009. Economists around the world now wonder how long the slowdown will last before China will resurge with a new competitive edge.

After all, the Euro-zone debt crisis has become a significant drag on the world economy and is unnerving the Chinese government, which cannot afford a second major global economic slump that would decrease the country’s export volume and thereby, mute its growth trajectory.

In addition, the steady drumbeat of bad economic news and the bearish outlook for US consumer demand keep adding fresh fuel to the quarrel as they reduce demand for raw material imports, which, in turn, leaves the domestic freight transport sector with weakening volumes.

However, there is no doubt that the country’s vast economy can boast massive productive potential. Many economic commentators see the slowdown as more of a short, sharp shock than a prolonged correction. A hard landing for China would require a far more severe shock to growth than is so far being perceived as likely, Singapore-based head of Asian research at ING Groep NV, Tim Condon, told Bloomberg.

Nonetheless, the European debt crisis has left a scar or two, especially in the trailer manufacturing industry. Chinese media agree that the downturn has hit the country’s transport industry as a whole. The prime mover market, for instance, decreased notably in the first half of 2011 due to rising petrol prices and the demand for trailers is prone to decline as well.

According to Chinese automotive journalist, Li Zi Yu, China’s successful container giant, CIMC, has only built 30,577 semi-trailers since January. In 2010, the company produced 44,973 units in the first half year alone.

Meanwhile, CIMC rival Guangdong Mingwei Special Vehicle, one of the oldest trailer manufacturers in China, experienced a 20 per cent drop in orders, Li Zi Yu says in the September edition of industry organ Special Purpose Vehicle.

However, it is not an easy task to compile accurate market data for the evolving and changing market that is the Chinese automotive sector. But, there is regional data available that can help draw the big picture.

According to the Hebei Vehicle Industry Association, the country’s trailer industry was hit hardest by the 2011 downturn. Hebei, a province 300km south west of Bejing, is home to China’s third largest automotive company, Dongfeng, and semi-trailer expert, Hebei Shunjie. The company produced 20 units per day in 2010, but had to reduce production to eight units per day in 2011 due to a sharp fall in orders. However, we cannot clarify whether the drop-off is the result of a decreasing export volume or a general braking in China’s infrastructure growth as it takes a consolidating breath.

The Liangshan County in the Shandong Province, meanwhile, reported a 30 per cent slump in the production of “general semi-trailers” in 2011 and a 17 per cent decrease in the manufacture of specialised transport equipment. Between January and July alone, the County’s leading Industry Association quoted a total production volume of 50,000 special-purpose vehicles – 10,000 less than last year.

These numbers contradict those published by Sheng Laiyun, Spokesman of China’s National Bureau of Statistics. According to Laiyun, the manufacture of transport equipment grew 12.1 per cent between January and September. Accordingly, the investments in fixed assets grew 32.1 per cent in the same time frame. 

Meanwhile, Lu Daming, director general of the Chinese Mechanical Engineering Society, told Chinese journalist Xiao Tang that sales of logistics equipment increased by 30 per cent in the first half of 2011. The director general projects the figure will reach 400 billion yuan (€45.5 million) for the entire year.

While official numbers indicate continued optimism, China’s government has moved to invest heavily in research and development to increase product quality and thereby create new demand.

The probing question, now, is whether China will temporarily counterpoise the slump or enter a whole new phase in its economic development. Some business analysts see China on a deliberate path to evolve from its positioning as the world’s cheap goods factory to a crucible of innovation that marries quality with quantity.

In that sense, it would follow Japan’s example, who finalised the transition long ago when the saturation of key markets brought on a turn against mass consumption and a pursuit of innovative engineering. Rather than being viewed as a mere mass market, the new Japan would also focus on product differentiation. China, meanwhile, now benefits from the Japanese example and encourages “re-tooling” to nurture indigenous innovation and cater for the need for small-batch production and quick changeover of product lines.

According to Chan-soo Park, a research fellow in technology and industry at the Samsung Economic Research Institute in South Korea, China’s big strides are a direct response to the government’s push to end dependence on foreign technology and to help shift the Chinese economy into more capital and technology-intensive industries like the Japanese one.

But, the seeds of the R&D commitment were sown even before a national innovation development plan was unveiled in 2006.

“Since 2000, the nation’s annual investment in R&D has expanded by 23 per cent. In 2011, China is expected to rank second in terms of R&D investment based on purchasing power parity,” says Park Chan-soo. “In addition, China is benefitting from the largest national R&D workforce in the world, harnessing 20 per cent of the world’s total R&D brain power.”

In both quantitative and qualitative terms, China has shown an impressive performance in innovation. “From 2007-2009, the annual average number of Chinese articles published in international science and technology journals totalled 104,157, placing China second,” says Chan-soo. “As for the number of articles covered in the top 10 per cent of international journals, China ranked fourth from 2007-9, up from 19th place in 1987-89.”

UNI INTERLUDE?

As a result, it is no surprise that China is on the verge of overtaking both America and the EU in the quantity of its scientists. And, the mere size of Asia’s population leads UNESCO to conclude that it will become the “dominant scientific continent in the coming years.”

But, how does China’s scientific foray translate into real life results? On the quiet, business analysts say that the country’s ability to implement European technology and quality standards will decide on weal and woe of China’s trailer manufacturing industry.

Therefore, the twelfth five-year plan (2011-2015) will not only encourage research, but also include new regulations to boost the country’s drop-and-pull transport market. According to CIMC’s Executive Vice President of Research, Son Zuo Wei, the industry’s main research goal will be the development of a new, lightweight product range. Guangdong Mingwei Special Vehicle, for instance, is already working on a lightweight semi-trailer model, says Chief Engineer, Yang Cheng Hua.

Facing the inexorable process of modernisation, small businesses will now have to decide whether to suspend production or invest in new technology, which, in turn, may lead to a nationwide consolidation wave, a wave that is powerful enough to re-organise the whole private transport sector.
After all, the new five-year plan will also enforce the move to drop-and-pull transport, a term widely used to describe modern logistic management. Chinese journalist Zhang Xiao Mei, however, sees a number of problems that might slow down the inception of modern logistics, such as low efficiency and lack of education. According to China’s Vice Minister of Transport, Zhang Zheng Lin, key issues such as insurance and freight monitoring also need improvement to offer a standardised regulatory framework.

Another concern is the implementation of a standardised connection between prime mover and trailer. At the moment, China’s transport industry is using a variety of different, often incompatible systems. The same issue is occurring in the warehousing industry, with docks differing around the country.

Finally, there also is a regulation deficit regarding vehicle management and monitoring, loading and unloading as well as freight management. Consequently, Wu Liu, pinyin for the term logistics, is starting to gain importance, mainly due to the relocation of production facilities from western countries to the Far East.

As a result, business analysts around the world closely observe China’s efforts to implement official trailer norms – regarding both design and safety – and a reliable monitoring system to make transport equipment traceable. They agree, however, that the overlaying problem is two-fold: How does China react to a sluggish world economy, and which solution does it choose to tackle the ever-growing freight task? After all, the road freight transport sector is still seeing continued growth, with Business Monitor International forecasting a 4.9 per cent increase in 2011.

At the end of the day, the simple response might be – knowledge. The ability to innovate has become more important than mere production capacity – and, even critics agree that China has the potential to make the transition. The country’s mere size and widely under-developed infrastructure will help it generate additional domestic demand for the transport industry, and the new five-year plan will enforce research and development in trailer technology.

Plus, increasing labor costs will force the industry to innovate. “It is hard to transfer the additional costs to end users, so companies need to absorb the increase. We advise them to improve technological innovation and develop high-end products,” says Lu Daming.

So, what’s the next big thing? Chinese journalist Zhang Xiao Mei says that there is great potential in refrigerated transport, as China looses an estimated €11.5 billion per year in the transportation of fruit and vegetables. The National Technical Committee of Standardization therefore recommends adopting European standards, not only in regard to temperature, but also safety and load restraint. 

The committee recommends a maximum transport temperature of 8 degrees Celsius inside a refrigerated van, and a compulsory monitoring system that is able to track the vehicle’s movement and control the temperature inside the freight room.

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