Sat, July 13

The real estate market and the automotive market in China have experienced a reversal in sales trends.

As the new year begins, I went shopping a couple of days ago and the mall was bustling with people, making me feel like time was flying by. I felt a bit dazed, noticing the interesting changes happening around me. In a few of our local malls, the ground floor resembled a car exhibition, showcasing a variety of gasoline, hybrid, and electric vehicles, attracting many onlookers and buyers, creating a lively atmosphere. Stepping out of the mall, I saw adjacent real estate sales offices and agency stores, where the atmosphere was noticeably quiet, with sales personnel dressed in sharp suits, exuding a sense of vigor, as if in a different world.

Cars, houses, and tickets are three things that Chinese people constantly pursue throughout their lives. However, in recent years, there have been some changes. More people are starting to save money, leading to fewer discussions about houses and purchasing houses, while discussions about vehicles and admiring vehicles are increasing. This change is also reflected in various industries, where we can see that the real estate industry and its related industries such as building materials, furniture, home appliances, and decoration are performing averagely, but leisure consumption such as cars, lottery tickets, concerts, coffee, and tea drinks are exceptionally popular.

The sales of lottery tickets exceeded 580 billion last year, reaching a historic high. The scale of concerts for the year exceeded 90 billion, an increase of nearly 70% compared to 2019. Activities for exchanging cars can be seen everywhere in coffee, tea, and snack shops, leading to an increase in demand for additional purchases. In the atmosphere of “live for today,” it naturally gave rise to the seesaw effect between the car market and the real estate market. Last year, the land transaction area in 300 cities nationwide hit the lowest record in nearly 10 years. Compared to 2021, the sales area of commercial housing decreased by 30%, and the sales volume decreased by 31%. A report from the Passenger Car Association pointed out that the sluggish real estate market was due to the waning enthusiasm for property investment. Last year, 21.62 million passenger cars were sold, showing a contrary growth of 5.2%. The competition among domestic brands was fierce, with Chinese brands holding a market share of 55.8% by November. As for joint venture brands, Japanese brands decreased from 24.1% in 2020 to 17.6%, German brands decreased from 25.5% to 21.4%, and American brands decreased to 8.5%. As for Korean and French brands, they are not elaborated here. With the increasingly fierce market competition, new cars are continuously being launched, and behind the price wars, intense competition is brewing. With the push of traffic marketing, the topics in the automotive industry are expected to surpass those in the digital industry.

The reversal of the relationship between cars and houses fundamentally stems from the continuous compression of the financial attributes of real estate, with growth being driven more by the manufacturing industry and exports. In the past, real estate has occupied a significant amount of valuable financial resources. According to calculations by Cinda Securities, by the end of 2021, the scale of credit related to real estate, bond issuance, and urban investment platforms reached 115.4 trillion yuan.

After the difficulty in selling houses in the past two years, a report from Northeast Securities pointed out that from 2019 to mid-2023, there has been a dramatic change in the credit structure. The growth rate of credit related to the industrial sector has increased from 5% to over 30%, while the growth rate of credit related to real estate has rapidly declined from 15% to zero growth. Some believe that real estate is the mother of economic cycles, as it involves a wide range of industries. If the property market does not recover, everyone’s livelihood will be affected, and decisive measures must be taken to save an economy highly dependent on real estate.

This viewpoint is somewhat objective, but it also carries a certain subjectivity. While the addiction to real estate does exist, the adjustment of industrial structure is more like a case of pressing down on one side of a floating gourd only to see the other side rise. While emphasizing that real estate is a pillar industry, we cannot ignore the fact that credit is flowing towards the manufacturing industry. Although this shift may confuse and distress those accustomed to making quick profits through speculation, it is also the process of manufacturing replacing real estate and expanding outward through exports.

It has been claimed that the external environment is chaotic and external demand is unstable, with reference to last year’s negative growth in export compared to the previous year. However, this is not entirely accurate. While our export growth may not be as rapid as in 2021 and 2022, exports as of November 2023 have still increased by 36% compared to the same period in 2019. With an average annual export growth rate of 8% over the past four years in China, what does this number signify? During the period of soaring housing prices from 2015 to 2019, the average annual export growth was only 2%. Therefore, the current situation indicates a downturn in the real estate market while the manufacturing industry and exports are on the rise. Everything is constantly evolving, and this is a more accurate description of the situation.

Some people claim that the export industry creates more job opportunities than the real estate industry, but this is a misconception. The employment opportunities generated by the real estate industry, including real estate professionals, construction workers, and related industry workers, amount to approximately 700 million people.

According to the calculation data from Galaxy Securities, the stimulating effect of exports on employment has reached 120 million people, and for every one percentage point increase in growth rate, it can drive employment for 270,000 people. Exports are considered an important pillar of employment, with automotive exports carrying the hopes of the entire village. Upon dissecting the export structure, it was found that machinery and electronic products account for over 60%, with automobiles being the most competitive product. According to data from the General Administration of Customs, in the first 11 months of 2023, automotive exports reached 6,529.2 billion, a growth of 79.6%. In comparison, mobile phone exports only grew by 3%, exports of automatic data processing equipment declined by 17.2%, while automotive exports showed a very impressive performance.

The China Association of Automobile Manufacturers predicts that by 2023, China’s automobile exports will reach an astonishing 5.2 million vehicles, surpassing Germany and Japan to become the world’s largest automobile exporter within two years. This logic is very clear – the upgrading of consumption is driving an increase in demand for recreational vehicles, and financial resources are also starting to flow into the manufacturing industry, thereby boosting the export-led employment effect.

The automotive industry is growing rapidly, and Chinese domestic brands are performing excellently in overseas markets. For example, last year BYD sold over 200,000 cars overseas, earning the reputation as a leader in new energy vehicle exports. Chery exported 937,000 cars in a year, with exports accounting for nearly half of its total sales. Lynk & Co achieved an average transaction price of over 170,000 RMB per car, establishing a brand premium overseas and expanding its market reach to Europe, the Middle East, and Southeast Asia. As Chinese cars venture abroad, where are their sales heading? With the world being so vast, where is the new frontier for Chinese cars to go global?

Chinese cars have achieved significant success in the Russian market, with exports reaching 736,000 units in just ten months, a nearly fivefold increase year-on-year, accounting for one-sixth of total exports. Among over 20 international car brands in Russia, Chinese cars now hold a market share of over 50%. However, this also indicates that the growth rate of Chinese cars will not be as exaggerated as before. Influenced by unique factors in the Russian market, such as wartime economy, inflation, and labor shortages, it will be challenging for Chinese cars to further increase sales and brand premiums after reaching 800,000 units in a year. Additionally, Chinese cars have also performed well in Western European countries like Belgium, the UK, and Spain, with sales ranging from 100,000 to 200,000 units, placing them in the top ten.

However, there is a phenomenon that needs special attention, which is the year-on-year sales decline in November: Belgium decreased by 56%, the UK by 8%, Spain by 46%, and Italy by 3%. Sales in all these countries are declining. Why do Europeans change their minds faster than flipping a book? There are also investigations into anti-subsidies, and the need to redefine subsidy standards. Following closely, exports of cars to Western Europe also declined in November, which is not a coincidence. The Southeast Asian market is also strong, but only Thailand’s market size can squeeze into the top ten. Regarding the Southeast Asian market, a friend told me that there is a clear division between cultures and religions, always giving a sense of various forces falling apart. In addition, Japanese car brands have a significant market share there, making it challenging to dominate this market. Other regions such as Africa and South America still have insufficient purchasing power. By 2023, the decline in car exports is all above 10%, with the North American market mainly relying on contributions from Mexico. There are also many challenges in areas where car sales are doing well in China, with some places lacking consumer power, some showing signs of intense competition, and some facing high market barriers. Each region has its own problems, and becoming number one in the world is indeed not easy. Considering factors such as geopolitics, consumer power, market barriers, and population, this is a complex challenge.

The biggest highlight of exporting cars to the Middle East region should be the Middle East region itself, especially Saudi Arabia and the United Arab Emirates. In November last year, Saudi Arabia’s car exports reached nearly 200,000 units, ranking in the top five; while the UAE saw its growth rate nearly triple in 2022, with a growth rate of over 70% in 2023, selling nearly 140,000 cars. The Middle East region has always had a mysterious allure, but compared to Russia, Western Europe, and Southeast Asia, it has unique advantages. Geopolitically, the Middle East region is strategically located between two oceans, three continents, and five seas. When we refer to the Middle East, we mainly mean the Gulf countries. In the past, people often perceived the social atmosphere there as conservative, with a lack of industrial development, and images of deserts and camels dominating their minds. However, in recent years, the situation has changed. Middle Eastern countries like Saudi Arabia, the UAE, and Qatar have all introduced their own ten to fifteen-year vision plans. After talking with friends who have been to the Middle East, I found that the changes in recent years are somewhat reminiscent of the feeling during our own period of reform and opening up. For example, Saudi Arabia is simultaneously promoting secularization and opening up its visa entry policies, leading to a several-fold increase in office rental prices in Riyadh. The UAE’s free trade zones have no tariffs or value-added taxes, low costs for water and electricity, and can handle anti-dumping and anti-subsidy investigations from Europe and the United States. Additionally, the UAE has signed currency swap agreements with Eastern countries, and the investment interactions between the two sides are becoming more frequent.

A survey shows that China has become one of the most popular countries in the Arab world. On one hand, it is a country rich in resources, and on the other hand, it is a country with advanced industries. The feeling of “you lack industry, I lack energy” is quite intriguing. The Middle East region seems to have suddenly awakened from a long slumber. In fact, the world is not that complicated. As long as one focuses on making money without causing trouble, the results will not be too bad. The natural conditions of the Middle East market are indeed unique. The per capita GDP of the Gulf Cooperation Council countries exceeds $20,000, with urbanization rates exceeding 90% and internet penetration rates also over 90%. Not only are they wealthy, but the population structure is also young, with only 3.5% of the population in Saudi Arabia being over 65 years old, and the Gulf Cooperation Council countries selling over 1 million new cars annually. These countries are not short of money; they lack high-quality products worth spending on. This environment naturally suits the development of the automotive industry, which also explains why Japanese and Korean car manufacturers pay special attention to this market.

According to data from China Automotive News, as of the first half of 2023, only one Toyota has captured over 30% of the market share in Saudi Arabia, far ahead of other competitors. Hyundai and Kia have a market share of around 20%, while Chinese brand cars have a market share of over 10% in Saudi Arabia, Bahrain, and Oman. To establish a foothold in the Middle East market, one must have real strength to survive. If one is only eager to make quick money abroad, apart from engaging in price wars, it is almost impossible to compete in other aspects, and such success will be short-lived. There have been lessons from history, such as when Chinese motorcycles once had a market share of over 80% in Vietnam, but later fell into internal disputes, continuously lowered prices to the point of loss, and even saw a proliferation of low-quality and counterfeit products in the market, ultimately leading to a complete collapse of the image and reputation of Chinese motorcycles. Ultimately, the key lies in creating high-quality products, long-term thinking, and localization. If one is looking for a sample that meets these three criteria in the Middle East, Lynk & Co is a good example. Since its establishment in 2016, Lynk & Co has focused on global development, with early product launches held in Berlin, Germany, Amsterdam, the Netherlands, and the Fuji Speedway in Japan, always adhering to global design, technology, and sales, rather than just pursuing short-term profits.

Many people may not be aware that Lynk & Co became a Chinese brand in 2022, with its export volume of models priced above 250,000 RMB ranking first. By November 2023, its global sales had exceeded 1 million units. Despite the relatively low buzz on social media, Lynk & Co’s overseas strategy differs from other emerging forces, which may put it at a slight disadvantage. The export destinations of Lynk & Co cover sales regions of many car manufacturers, mainly concentrated in South America, Africa, Russia, Southeast Asia, and third world countries. While consumers in these regions show enthusiasm, their purchasing power remains relatively weak. Chinese car companies typically rely on offering good value for money to capture markets, but Lynk & Co has chosen a different path. From the outset, it opted to enter the European market, a mature market where barriers are high and Japanese and American car manufacturers have hesitated to enter. Currently, Lynk & Co has opened 11 offline stores in six European countries, with over 230,000 subscription-based registered members. Since launching its Asia-Pacific strategy in October 2021, Lynk & Co has successfully entered markets in the Middle East such as Kuwait, Israel, and Saudi Arabia, opening five Lynk & Co Centers and two Lynk & Co Spaces. In addition to Lynk 01 and Lynk 05, Lynk 03 and Lynk 09 are also beginning to enter the Middle East market. Now, Lynk & Co is officially entering the Vietnamese market, opening its first Lynk & Co Space in Hanoi, marking the beginning of its journey in Southeast Asia.

The overseas journey of Lynk & Co began in Europe and extended to the Asia-Pacific strategy, lasting for 7 years. For example, Lynk & Co participated in the WTCR racing competition. In case of any malfunctions, they would use mass-produced engines for modification to quickly build a racing car. This demonstrates the high efficiency interchangeability between Lynk & Co cars and mass-produced vehicles in WTCR events. From the racetrack to the streets, smooth replacement of components can be quickly achieved. Performance has always been the hallmark of Lynk & Co 03, and its intelligent experience is equally impressive. The Lynk & Co 03 is equipped with an 815 chip, Link OS infotainment system, and Level 2 autonomous driving as standard across the range. As a performance car, its level of intelligence even surpasses that of similarly priced electric models. If the automotive industry is the crown jewel of a country’s manufacturing sector, then transforming an ordinary shopping car into a performance car that leads the trend on the racetrack is a symbol of a car brand. For example, Japan’s JDM, Germany’s MG M2S, and America’s big V8 all rely on high technological barriers to create brand premiums. What we once could not manufacture, we can now independently develop, which is an admirable achievement.

I am somewhat impressed by certain things. Nowadays, car models in the market are all pursuing the ultimate, with features like panoramic sunroofs, hidden door handles, and electric configurations one after another. New cars seem to be carved out of the same mold. Lynk & Co has spared no effort and money to successfully create a high-horsepower sports car that can truly compete on the track in China. This has driven the development of vehicle lightweighting, engine tuning, chassis architecture, and more. This marks an important step forward for the Chinese automotive manufacturing industry. It is a long and difficult task, but the right path is also the same principle.

In recent years, Chinese cars have had a poor reputation in the Middle East, with locals expressing reluctance to purchase Chinese cars with a budget exceeding $10,000. This is mainly due to the fact that Chinese cars have not been modified for hot climates in the region. Instead, they are simply transported and sold locally, resulting in poor air conditioning performance, unstable new car quality, and inadequate after-sales service. In Qatar, only a few hundred Chinese cars are sold each year, prompting people to question why we always look to Japan and South Korea as examples of successful international expansion in the automotive industry.

Exporting a large number of cars does not automatically make a country a powerhouse in the automotive industry. Japan, for example, has 178 car production factories and 62 component factories worldwide. Over the years, Japan has built a reputation for fuel efficiency, durability, and high resale value for used cars. They have developed a complete value chain, including procurement, design, production, sales, and after-sales service. Not every country in the world has the opportunity to excel in the automotive industry like Japan has over the years.

We often say that slow is fast in many cases. On a larger scale, the Belt and Road Initiative has quietly passed its tenth anniversary. Extending from the Eurasian continent to Africa and Latin America, in the past decade, the trade volume between China and Arab countries has exceeded 430 billion US dollars, doubling from ten years ago. The bilateral direct investment between China and Arab countries has reached over 30 billion US dollars, nearly tripling from a decade ago. This past decade has seen Chinese automobile exports becoming the world’s number one, with Chinese cars thriving in the Middle East. This is certainly not a coincidence. Looking at the bigger picture, the overseas expansion of Lynk & Co in Europe, the Middle East, and Southeast Asia over the past seven years aligns perfectly with the Belt and Road Initiative’s footprint connecting Eurasia over the past decade. This is also the roadmap for China’s automotive era of exploration, as cars venture overseas to discover new continents, driving foreign investment and exports, and boosting the outward expansion of the manufacturing industry.

Some people ask me why indulgent consumption such as lotteries, entertainment, and coffee is so prevalent, and how to break free from this increasingly spiraling cycle. I believe that more and more people are living with greater clarity, realizing that life is short, so why live so hard? The fleeting pleasure of quick money addiction will not last. If one desires to live a relaxed and carefree life, to break free from the dependence on concrete and steel, industrial upgrading is not something that can be achieved overnight; it may even require the efforts of ten years or even several generations. However, if one does not choose this path and continues to follow the stimulating ways of the past, the results will only deteriorate over time.

The Japanese automotive industry has adopted a strategy of keeping core technology within the country while transferring non-core technology research and development overseas to maintain a technological advantage domestically. By selling back to Japan at low prices or exporting directly to third countries, Japanese automotive companies occupy over 60% of the Fortune Global 500, creating 5.3 million jobs in Japan, accounting for 10% of the total workforce. Even the most ordinary frontline positions can receive salaries close to 4 million yen. This strategy has been a crucial way for Japan to resist a 20-year economic downturn, establishing high-tech barriers overseas to provide a larger industrial chain, more job opportunities, higher incomes for the country, and benefiting all residents through transfer payments. Under global trade rules, a country can only adapt to the rules unless it is strong enough to help redefine them. There are striking similarities in history, proving that what Japanese and German car manufacturers can achieve, we can also achieve. In this sense, the Lynk & Co brand, representing China’s top car manufacturing level, has ventured abroad, selling in Asia, Africa, Latin America, and even European and American markets, marking the entry of the Chinese automotive industry into a new era of exploration, facing challenges and opportunities similar to those experienced by European, American, Japanese, and Korean car manufacturers in the last century.