The Obama Administration has taken direct measures to address U.S.-China automotive trade, such as the tariffs on Chinese tires. These concerns have focused on such issues as
China's export restrictions on certain raw materials, including rare earths, which are necessary for many auto parts production, including those for use in hybrid and electric cars; China's incomplete implementation of its commitments as a member of the World Trade Organization, especially with respect to domestic content rules, protection of non-Chinese firms' intellectual property rights, and technology transfer requirements; the extent to which Chinese firms are subsidized or otherwise supported and protected by the government when they compete with foreign companies domestically and with imports into China; and the implications of China's recently announced restrictions on foreign carmakers' expansion in China amid the government's efforts to promote domestic producers, for example, how they may affect U.S. auto companies' profitability and business prospects in China. This report provides an overview of China's auto sector development, including vehicle production, sales, market drivers, manufacturers, and automotive trade. It also examines how the Chinese government policies and measures guide and often direct the evolution of China's auto sector and discusses the prospects and implications for international automakers operating in China. China Becomes a Top Motor Vehicle Producer

			The World Leader in Vehicle Output

 Figure 1 illustrates the speed with which China has become one of the world's top automotive manufacturers. In contrast to its experience in the challenging environment in North America during the economic crisis, GM expanded rapidly in China and sold more cars in China than in the United States in 2010 and 2011. China's policy shift and the implications for global auto companies are discussed later in this report. China's Recent Auto Sector Policies and Measures

The United States and other producers had been highly critical of China's 1994 Industrial Policy for the Automotive Sector . Theses eight goals are summarized below:
Achieve a 10% average annual growth rate, based on the more than 10 million vehicles to be produced and sold in 2009; Increase auto consumption with a reasonable system of taxes and fees, and to create an infrastructure to support electric vehicles; Optimize the auto market demand structure so that small passenger cars with engine displacement of under 1.5 liters are to account for more than 40% of the market, while cars under 1.1 liters will comprise over 15% of the market and heavy trucks will account for 25% or more; Make progress on industry consolidation and restructuring, aiming to consolidate the current 14 major auto manufacturing groups, which command more than 90% of market share, into 10 such groups; to form 2 to 3 large auto groups with an annual capacity of over 2 million units, and 4 to 5 smaller groups with annual production capacity of over 1 million units; Increase the market share of Chinese brand vehicles to at least 40%, with about 10% of vehicle exports made by independent Chinese automakers; Increase production capacity of new-energy vehicles to 500,000 units, whose sales volume should account for 5% of total passenger cars; Improve automotive research and development to meet international standards; Expand capacity of auto parts manufacturing through mergers and restructuring, while seeking technological independence in key auto parts and systems such as engine transmission, steering, braking, drivetrain, suspension, and vehicle control. Foreign auto makers doing business in China, in general, could face cost increases and become more reliant on their Chinese partners. At the same time, the central government also offers various incentives to promote sales of new energy vehicles. This proposed procurement list has caused concerns among foreign car companies. In 2011, the United States exported 136,222 units of new passenger vehicles and light trucks to China, making it the fourth-largest export market in volume for U.S.-produced vehicles. In 2011, U.S. imports of auto parts from China were over $12 billion. After brief stagnation due to the global economic downturn, U.S. imports of Chinese auto parts surged between 2009 and 2011, becoming the second-largest source of U.S. imports of auto parts, behind only Japan. The U.S. auto industry also has restructured and its labor costs are becoming more competitive. The Chinese government has been pressuring all foreign-Chinese car manufacturers to develop local brands (i.e., jointly designed brands with their Chinese partners) aimed at small car buyers at the lower end of Chinese car market, as part of the drive to boost "indigenous innovation." To many industry and trade specialists, this move followed renewable energy trade disputes between China and the United States and appears largely symbolic.
The automobile industry, a key sector in China's industrialization and modernization efforts, has been developing rapidly since the 1990s. In recent years, China has become the world's largest automotive producer, with annual vehicle output of over 18 million units in 2011. China is now also the world's biggest market for automobile sales. Meanwhile, China's auto sector development and policies have caused concerns in the United States, from automotive trade, China's failure to effectively enforce trade agreements and laws, to market barriers and government policies that increasingly favor Chinese manufacturers, which could affect business operations and prospects of international companies doing business in (or with) China.
China's auto industry has developed extensively through foreign direct investment, which has come in the form of alliances and joint ventures between international automobile manufacturers and Chinese partners. These international automobile manufacturers, who generally dominate the higher end of the Chinese market, have focused on making cars for China's large and fast-growing market. The domestic Chinese automakers, who occupy the lower end of the market, struggle to improve design and quality to expand sales overseas.
China exports and imports relatively few vehicles. Most of the cars produced in China stay in China and its vehicle exports are mostly light trucks and passenger cars shipped to developing country markets. Automotive trade between the United States and China has increased in recent years, primarily in auto parts. In 2011, the United States imported over $12 billion in auto parts from China, making it the second-largest source of auto parts for U.S. imports (behind only Japan). Many of these imported parts are aimed at the aftermarket, as most of what China exports to the U.S. market now are standard products such as brake parts and electrical parts. But with high rates of investment and growth in China by the leading U.S. manufacturers of both cars and parts, major motor vehicle companies are increasingly sourcing parts from China.
There have been a number of auto sector trade disputes between the United States and China, addressing issues such as China's implementation of its WTO obligations, failure to implement an effective IPR enforcement regime, market barriers such as high tariffs on vehicle imports, export restrictions of raw materials such as rare earths, and various forms of government assistance to domestic auto and parts companies, such as tire producers.
An emerging issue is that the Chinese government's policies and measures are becoming increasingly restrictive towards foreign auto companies, while at the same time giving preferential support to its domestic car makers. As the central government designates clean-energy vehicles and their components as one of the seven "strategic and emerging" industries (in which it aspires to become a world leader), foreign companies, such as GM, reportedly have been pressured to transfer technology and/or help their Chinese partners to develop these new technologies. These new restrictions and conditions imposed by the Chinese government have caused concerns among global auto companies regarding the business environment in China and how these measures may affect their business operations, growth plans, and competitiveness.
This report provides an overview of China's auto sector development: vehicle production, sales, market drivers, foreign and domestic manufacturers, and automotive trade. It examines how the Chinese government policies and measures guide and often direct China's auto sector development. In addition, this report discusses the prospects and implications for global automakers operating in China.