The automobile market in China is booming

German brands are quite popular abroad, and the automotive industry is profiting from this in China.

By entering into joint ventures with Chinese companies, German manufacturers are conquering the Chinese automobile market – and Siemens is making a key contribution to their success.

About 35 years ago, Volkswagen was the first Western car maker to establish a subsidiary in China. Today the country has become an important sales market for Volkswagen. There are good reasons why many foreign companies see great potential in China. China has been the world’s largest economy since 2010, and is competing with the United States for the title of the world’s largest trading nation.

The current Five-Year Plan of the Chinese government is intended to strengthen the economy by shifting away from exports to focus instead on innovation and the domestic market. Since China joined the World Trade Organization, investment conditions have improved for foreign car makers.

China’s automobile market holds great potential

According to calculations by the management consulting firm McKinsey, China’s automobile market holds great potential. In fact, the People’s Republic is on track to become the world’s largest market for premium-segment automobiles by the year 2020. What’s more, foreign brands have an unusually good reputation in China, since people automatically assume they are of higher quality than domestic products. And the automobile is an especially important status symbol in China.

Joint ventures with Chinese companies

But it’s not so easy for a foreign car maker to establish a subsidiary in China. In most cases, foreign companies enter the Chinese automobile market one step at a time. For example, a German auto maker must enter into a joint venture with a Chinese company, and the local partner must always hold at least 51 percent of the equity. In the first step, German companies deliver parts, which are then assembled in China. After that, further investments are made in specific factories. This has been the recipe for success for German companies like VW, BMW and Daimler, which have been able to considerably boost their sales as a result.

The role played by Siemens

Siemens supplies the automation technology and expertise required to build new production facilities or optimize older ones. “The automotive sector in China is our most important end customer market,” said Jürgen Nolde, head of Vertical Automotive at Siemens, confirming of this fruitful working relationship.