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China slashed tariffs on imported cars: Here's what happens

In an attempt to further open up the Chinese market to international players, China recently announced it would lower import tariffs on passenger cars. The announcement has attracted significant attention in the global auto industry, and has been celebrated in the US as a major step forward. Let’s take a look at what is happening behind the headlines, and what this move will mean for the automotive industry.
China’s Ministry of Finance (MoF) ended speculation on May 22 with its announcement to cut import tariffs on passenger vehicles from 25% to 15%, and on auto parts from 8-25% to 6%. Many global auto players reacted swiftly with press releases confirming the intent to pass on tariff reductions to China’s car buyers by lowering list prices. Domestic automakers may use this move to cut prices on their vehicles to stay competitive.
Should we now expect imports of foreign cars into China to sky-rocket, fueling the growth of international car companies?
Not so fast! China today is already the largest car market in the world and foreign brands hold more than 60% market share – largely through joint ventures with domestic automakers. Only a small share (3% or 1.2 million vehicles) of all cars sold in China were imported in 2017. Despite the recent cuts in tariffs, we don’t anticipate this to change very much. 
Almost all major global auto brands have localized manufacturing and now assemble a large part of their global product line-up in China. The are only two notable exceptions, which have not yet set up local manufacturing in China.
Let’s take a closer look at the type of cars China is importing today. Approximately 80% of imported vehicles are considered premium or luxury, compared to just 8% of the overall market. Top imported brands include three German and two Japanese brands; only one American brand can be found among the top 15.

And the “winner” is? Most likely Japan. At 350,000 vehicles exported to China last year, Japan is the largest source of imported vehicles in China and tariff cuts may well protect Japan as a manufacturing base for premium vehicles. Seventy-percent of all exports to China come from just three countries: Japan, followed by the US and Germany.
We should know very soon how brands take advantage of this new move, and how Chinese consumers react to lower car prices. In the meantime, I’d like to invite you to comment on this topic. What impact do you expect lower tariffs will have on sales of imported cars in China?

From: com

Daniel Zipser
Senior Partner at McKinsey & Company, Leader Greater China Consumer & Retail Practice