Social and Demographic.
In China as in third world countries, owning a car is a symbol of privilege and wealth, especially foreign brands. (tdctrade.com) At present the ratio of cars to people is very low, only 16 million cars compared to 1.3 billion people. (www.news.bbc.co.uk).
But the former nearly unattainable dream of owning a car is becoming more real for the Chinese people with the enforcement of the market-opening agreements of the WTO, attracting FDI and thereby capital, know-how and technology creating competition and lower prices. The rapid growth of the Chinese economy and substantial increases in disposable income in addition with a coming credit system will also very likely contribute to a real growth in the sales of cars. It is estimated that about one million people in China earns over 150,000 yuan (18,000 U.S. dollars) per year. According to english.peopledaily.com.cn this group bought cars priced over 400,000 yuan (48,000 U.S. dollars). It is this group that BMW will attract with their high-performance cars.
However, it is also very important to recognise that China is a very geographically large country with different conditions in different regions. It appears that it is the eastern coast with cities like Beijing, Shanghai and Tianjin that is the area where foreign car manufacturers have established themselves. .
Technology.
At present the domestic car manufacturers of China, with Red Flag probably being the most well known example, lack the know-how and technology to be able to produce cars that can compete with foreign manufacturers. However, due to the join-ventures established in China such as FAW-VW which was the first foreign car manufacturer in China (1982) the technology have gradually become better. (www.wardsauto.com).
The Chinese government encourages FDI since it recognises that the Chinese car industry cannot develop properly without technological and know-how transfer from car manufacturers in the west.
