In the first quarter of 2024, the Chinese GDP grew by 5.3 per cent year-on-year, laying a solid foundation for achieving the annual growth target of about 5.0 per cent.
The macroeconomic situation showed accelerated industrial production, robust growth in the service sector, a recovery in the consumer market, optimisation of the trade structure and a stable employment situation.
So, as the Chinese economy continues to steadily improve, what does this mean for the trailer market and CIMC Vehicles.
Q: With the Chinese economy making such bright start in 2024, is China’s commercial vehicle market following suit with the same positive results?
A: Yes, it achieved a good performance in the first quarter of 2024, with market recovery and accelerated growth in the export market. The cumulative production and sales figures have reached 997,000 and 1,033,000 units, respectively, representing increases of 5.1 per cent and 10.1 per cent year-on-year. Among them, domestic sales accounted for 819,000 units, up 6.3 per cent year-on-year. While exports stood at 214,000 units, a significant year-on-year growth of 27.5 per cent.
Q: How does this impact CIMC Vehicles?
A: CIMC Vehicles has achieved remarkable performance in recent years, maintaining the top global ranking in the semi-trailer manufacturing industry for 11 consecutive years. The operating profit margin has reached to 13 per cent, and overseas business revenue has contributed over 50 per cent in 2023.
We have fully launched our third venture, moving to intercontinental operation. It is marked by the ‘Star-chained Manufacturing Network’, focusing on the structural reform of semi-trailer production. Its essence is to enhance the efficiency of intercontinental operation.
The venture will be divided into three phases. The first is ‘Star-chained Manufacturing Network’ from 2023 to 2025, which aims to fully implement a sophisticated manufacturing system, achieving a leap in semi-trailer business in the domestic circulation with significant growth in both revenue and production efficiency.
The second stage, from 2025 to 2027, will see the ‘Champion Tanker Business Group’ enter a stage of high-quality development, with the integrated new energy tractor and trailer forming an incremental business.
The third phase, from 2028 to 2030, will integrate new energy tractor and trailer into international circulation.
Looking ahead, CIMC Vehicles will continue to consolidate its global operation strategy of ‘Intercontinental Operation, Local Manufacturing’. The North American business will continue to promote the transformation and upgrading of its corporate governance structure, build a new development paradigm of ‘new quality productivity’, enhance resilience in development, and achieve a robust performance of its operations. The European business will consolidate its high-quality development and actively seek breakthrough opportunities. Meanwhile, we will continue to focus on incremental opportunities in emerging markets.
Q: Can you explain what the Star-chained Manufacturing Network and the Star-chained Plan are?
A: A year ago, we launched the ‘Star-chained Manufacturing Network’, focusing on integrating resources to establish a new type of semi-trailer production organisation which would encompass key value chains, including procurement, production, circulation and distribution.
The priority of the company in 2024 will be the implementation of the Star-chained Manufacturing Network, which will strictly follow up on the achievements and insights so far, ensuring that its strategy firmly shifts from a defensive to an offensive mindset, so that we can realise our goals with a flexible mindset and means, and build a new engine of growth for the third venture.
Q: What does the ‘old for new’ and ‘new quality productivity’ government message mean, and how this impacts the trailer industry?
A: In April 2024, the Ministry of Commerce of China, along with 13 other departments, issued a notice for the ‘Promotion of the Old-for-New Consumer Goods Initiative’.
The general requirements of the policy are to insist on deepening supply-side reform and expand demand. The policy is designed to use the improvement of standards in technology, energy consumption and emissions as a guide, provide incentives through policy measures to gradually establish a method that makes it easier to get rid of the old and more willing to replace with the new. The policy aims to significantly expand domestic demand and promote a shift from post-pandemic recovery, to sustained expansion of consumption.
New quality productivity arises from technological breakthroughs, innovative production and the upgrading of industries. ‘Accelerating the development of new quality productivity’ has been included in this year’s government work report and is listed as one of the top ten tasks for the year 2024.
New productive forces encompass three key elements: new momentum, new models, and new industries. These are not solely driven by technology but are a combination of technology and business evolution. With Chinese macroeconomy development becoming a new normal, the semi-trailer industry is being forced to accept new development concepts and begin to build a new development pattern.
Using the definition and connotation of new quality productivity for the deduction, we find that the semi-trailer industry can build a new development pattern through innovative design and production technology, organisational structure reform of semi-trailer companies and a reallocation of the industry’s surplus capacity resources under dual circulation.
This new development pattern can create a higher level of production, better customer experience and sustainable profitability, which help the entire industry fundamentally escape the situation of involution. My above opinion was also published in the McKinsey China Automotive CEO Digest.
Q: How do you plan on going from ‘old to new’ and ‘forge new quality productivity’ specifically? How does the competition factor into this?
A: Involution seems to have become the new normal for Chinese manufacturing industry and the cause comes from the massive capacity of inefficient semi-trailers formed during the stage of rapid growth.
Looking back on the previous journey, through the first venture, CIMC Vehicles has not only launched its own semi-trailer business, but also initiated the regularisation, industrialisation, and scale of the Chinese semi-trailer industry.
Subsequently, the second venture focused on building an intercontinental operation pattern for the semi-trailer business and promoting the construction of a global supply chain for semi-trailers. During the second venture, we basically established a sophisticated manufacturing system and new infrastructure management for the semi-trailer business, but this was not enough to help us escape the increasingly severe involution situation.
Our third venture is marked by the ‘Star-chained Manufacturing Network’, focusing on the structural reform of semi-trailer production organisation.
Its essence is to improve the intercontinental operation process and greatly enhance the efficiency of intercontinental operation. There is no precedent for this attempt. Our company, with more than 10,000 staff, is like a ship sailing on a vast sea full of unknowns and crises. However, I firmly believe that only in this way can we fundamentally escape the industry’s involution and once again lead the Chinese semi-trailer industry into a new development pattern.
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