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9 Hong Kong

Hong Kong

Automotive report
(Forecast closing date: October 12th 2010)

New passenger car registrations, international comparison


('000)
2005 a 2006 a 2007 a 2008 a 2009 a 2010 c 2011 c 2012 c 2013 c 2014 c
Hong Kong 24 24 30 31 24 b 30 30 31 31 31
US 16,948 16,505 16,090 13,195 10,346 b 11,401 12,338 13,771 14,734 15,653
Japan 4,748 4,642 4,400 4,228 3,924 4,262 4,435 4,563 4,624 4,687
China 3,845 5,073 6,300 b 6,760 b 10,352 b 11,460 12,489 14,019 15,267 16,722
Germany 3,319 3,468 3,148 3,090 3,781 b 3,149 3,234 3,345 3,414 3,511
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

Overview The automotive industry in Hong Kong is small. Production is limited to auto-
motive parts and components, but as almost all of the territory’s manufacturing
industry has moved to China in recent years, even this is not especially
significant. The retail market is limited, partly owing to government policies
that have encouraged the use of public transport rather than private cars.
Nevertheless, the market for luxury cars is disproportionately large—ownership
rates for Mercedes-Benz cars, made by Daimler of Germany, are among the
highest in the world.

Income and demographics


2005 a 2006 b 2007 b 2008 b 2009 b 2010 c 2011 c 2012 c 2013 c 2014 c
Nominal GDP (US$ bn) 177.8 189.9 a 207.1 a 215.1 a 210.6 a 218.8 219.2 225.2 234.1 246.3
Population (m) 6.9 6.9 a 7.0 a 7.0 a 7.1 7.1 7.1 7.2 7.2 7.2
GDP per head (US$ at PPP) 35,236 38,703 42,110 43,701 42,776 45,494 47,933 50,745 53,837 56,946
Private consumption per head (US$) 15,003 16,018 a 17,849 a 18,712 a 18,363 19,354 20,041 20,852 22,014 23,312
No. of households ('000) 2,193 2,226 2,261 2,297 2,333 2,369 2,406 2,444 2,482 2,521
No. of households with annual earnings
above US$5,000 ('000) 2,094 b 2,133 2,181 2,221 2,246 2,284 2,319 2,356 2,397 2,440
No. of households with annual earnings
above US$10,000 ('000) 1,860 b 1,901 1,956 1,995 2,011 2,046 2,077 2,111 2,151 2,194
No. of households with annual earnings
above US$50,000 ('000) 858 b 892 951 980 967 989 1,003 1,020 1,049 1,082
No. of households with net wealth over
US$1m ('000) 197 340 543 349 340 366 378 396 417 443
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

Passenger vehicles Hong Kong is a small and densely populated city, and government policy is
officially aimed at encouraging the use of public transport rather than private
cars. The government has therefore invested heavily in public transport
infrastructure. Although there are no import tariffs in Hong Kong, the govern-
ment levies a first-registration tax (FRT) on cars purchased in the territory. The
FRT varies according to the price of a vehicle, starting at 35% of the purchase

Industry Report: Automotive October 2010 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2010
Hong Kong 10

price below HK$150,000 (US$19,000) and reaching 100% of the price over
HK$500,000. The registration tax for motorcycles stands at 35%, for van-type
light goods vehicles at between 17% and 85%, for other goods vehicles at 15%
and for taxis, buses and other specialised vehicles at 3.7%.
This tax, along with emissions standards and other factors, such as the high cost
of parking spaces and limited road space, has been fairly effective in terms of
restraining car demand in the territory. In 2010 Hong Kong was estimated to
have just 55 cars per 1,000 people, a penetration rate well below that of a
number of less highly developed countries (Malaysia, for example, had an
estimated 311 cars per 1,000 population in 2010) and much lower than the rates
in countries with equivalent levels of income per head (in most OECD
countries the number of cars is roughly one-half of the size of the population).
Hong Kong's car-ownership rate is even lower than that of a comparable Asian
city state, Singapore, which had 111 cars per 1,000 people in 2010. This
highlights Hong Kong's greater reliance on public transport.

Passenger car registrations


2005 a 2006 a 2007 a 2008 a 2009 a 2010 b 2011 b 2012 b 2013 b 2014 b
Passenger cars (stock per 1,000 people) 50.9 51.9 53.3 54.6 55.8 c 54.7 54.9 55.4 55.8 56.2
Passenger car registrations ('000) 24.4 24.5 29.8 30.9 23.8 30.0 30.1 31.0 30.6 31.3
Passenger car registration growth (%) -4.8 0.5 21.7 3.5 -22.9 26.3 0.1 2.9 -1.2 2.3
a Actual. b Economist Intelligence Unit forecasts. c Economist Intelligence Unit estimates.
Source: Economist Intelligence Unit.

Demand. Demand for new cars in Hong Kong has traditionally been highly
volatile, and it continues to be influenced strongly by the health of the
economy. Sales plunged by 22.9% in 2009 owing to the weak economic climate,
but demand has surged again in 2010, in line with historical precedent—slumps
are usually followed by sales booms as pent-up demand is released. Between
2004 and 2009 passenger-car demand grew at an average annual rate of 3%. In
the forecast period (2010-14) the Economist Intelligence Unit expects demand to
remain volatile, but growth is likely to average around 6% a year, helped by the
boom in 2010.
In the forecast period average new-car sales are likely to remain close to 30,000
a year. Compared with other rich economies car-ownership rates in Hong Kong
will remain modest, at roughly 55 cars per 1,000 population. The territory's
small size limits potential demand for cars. Hong Kong is a crowded city, given
that 7m people live in an area of slightly more than 1,000 sq km and that 40%
of this area consists of national parks that are protected from development.
Moreover, public transport in the territory is both affordable and efficient, so
that 90% of commuter journeys are taken on public transport. It is therefore
likely that, even at the current relatively low ownership levels, the market for
passenger cars in Hong Kong is approaching saturation.
Pricing. Although Hong Kong’s car market is small, demand in particular
subsectors can be strong. For example, the market for luxury cars in the
territory is much bigger than suggested by data for overall car ownership.
Ownership levels of high-quality marques, such as Rolls-Royce (owned by
BMW of Germany), Bentley (owned by Germany's Volkswagen) and Mercedes-

Industry Report: Automotive October 2010 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2010
11 Hong Kong

Benz (made by Daimler of Germany), are among the highest in the world.
Patrick Lee, a managing director of a local distributor, Crown Motors, noted in
2010 that luxury vehicles accounted for 23% of Hong Kong's passenger-car
market in 2009. As a result of the dominance of imports, currency trends can
affect prices and thus demand. In 2009 the sharp rise of the yen against the
Hong Kong dollar hurt sales of Japanese cars relative to those of European
vehicles. In 2010-14 the yen will depreciate against the Hong Kong dollar, and
this may support demand for Japanese models, while the euro's appreciation
against the local currency could curb enthusiasm for European cars.
% of monthly personal Affordability
Item Price (US$) disposable income rank
Low-priced car, 900-1299cc (low) 18,743 1,034 17 out of 58
Low-priced car, 900-1299cc (high) 18,952 1,045 13 out of 58
Compact car, 1300-1799cc (low) 20,520 1,132 9 out of 58
Compact car, 1300-1799cc (high) 25,404 1,401 10 out of 58
Family car, 1800-2499cc (low) 37,791 2,085 15 out of 58
Family car, 1800-2499cc (high) 59,226 3,267 16 out of 58
Deluxe car, 2500cc upwards (low) 104,903 5,787 12 out of 58
Deluxe car, 2500cc upwards (high) 171,355 9,452 17 out of 58
Yearly road tax or registration fee (low) 507 27.96 28 out of 52
Yearly road tax or registration fee (high) 748 41.24 24 out of 52
Cost of a tune-up but no major repairs
(low) 465 25.62 27 out of 58
Cost of a tune-up but no major repairs
(high) 477 26.33 18 out of 58
Annual premium for car insurance (low) 2,039 112.5 20 out of 58
Annual premium for car insurance (high) 2,323 128.1 14 out of 58
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

Supply. As no cars are manufactured locally, domestic automotive demand is


served entirely through imports. Tough efficiency and environmental require-
ments favour European and Japanese cars over those from the US. The fact that
most cars manufactured in the US are left-hand-drive models also makes them
ill suited to Hong Kong, which is predominantly a right-hand-drive market.
Local automotive distribution is handled by agents, which act as distributors for
a group of brands and provide a comprehensive range of services, including
financing, after-sales service and supply of parts.
The leading agent in 2009 was Inchcape of the UK, with a market share of
28.9%, led by its distributor, Crown Motors, which has the rights to distribute
vehicles made by the leading Japanese carmaker, Toyota (including vehicles
made by Toyota's luxury division, Lexus), as well as those made by Hino (also
of Japan) and Daihatsu of South Korea. Crown Motors also distributes vehicles
manufactured by Mazda, which is owned by a US firm, Ford.
The local Dah Chong Hong (DCH) group, through various subsidiaries,
distributes cars made by a German manufacturer, Volkswagen, including its
Audi and Bentley marques; by Nissan, Honda and Acura of Japan; by Opel,
which is owned by a US firm, General Motors; and the car and truck marques
of Isuzu of Japan. DCH claimed a 25% market share of the overall vehicle

Industry Report: Automotive October 2010 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2010
Hong Kong 12

market in Hong Kong in the first half of 2010. Mercedes-Benz cars, and vehicles
made by Hyundai of South Korea, are sold by an arm of the local Jardines
group, Zung Fu. In 2009 Mercedes-Benz was the second most popular car
marque, and also the leading premium brand, in the combined Hong Kong-
Macau market. Wearnes Motors, which belongs to Singapore's WBL group,
distributes cars made by Volvo of Sweden (which is owned by Ford) and by a
French-Japanese joint venture, Renault-Nissan. Subsidiaries of the Malaysian-
based Sime Darby group distribute vehicle marques including Rolls-Royce,
BMW of Germany, Peugeot of France, Mitsubishi and Suzuki of Japan, Ford, and
Land Rover (which is owned by Tata Motors of India). Other marques sold in
Hong Kong include Maybach (which belongs to Daimler), Porsche of Germany
and Aston Martin of the UK.
Finished vehicles will continue to be imported, although it is likely, given
China’s booming production capacity, that cars will eventually be sourced from
the mainland. This will happen only gradually, however, as concerns about the
quality of mainland-Chinese vehicles will outweigh any price advantages that
such cars may enjoy in the period to 2014. Many international carmakers will
retain sales and distribution operations in Hong Kong, usually in co-operation
with a local partner. Hong Kong will remain a particularly important market for
luxury-car marques, despite the government's efforts to promote more environ-
mentally friendly cars. The Mercedes-Benz S400 luxury hybrid, which was
launched in 2009, shows how upmarket retailers can take advantage of govern-
ment tax breaks for "green" vehicles, including a reduction in the FRT.
Hong Kong Automotive Parts Industry Association: www.hkapia.com

Environmental pressures Emissions standards in Hong Kong are strict. The territory moved to the Euro 5
standard for unleaded petrol and motor-vehicle diesel in mid-2010. The intro-
duction of tax incentives for low-emission vehicles in 2007, which included a
30% reduction—worth up to HK$50,000 (US$6,400)—in the first-registration tax
(FRT), has stimulated demand for hybrid cars (which are powered by a
combination of internal-combustion engines and electric motors).

Oil price and petrol consumption


2005 a 2006 b 2007 b 2008 b 2009 b 2010 c 2011 c 2012 c 2013 c 2014 c
Petrol consumption ('000 tonnes) 289 291 301 304 284 287 288 289 289 289
Oil prices (Brent; US$/b) 54.4 65.4 72.7 97.7 61.9 77.0 73.0 80.0 84.5 83.5
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: Economist Intelligence Unit.

Demand. The government is concerned that higher numbers of vehicles on the


road will lead to environmental damage and congestion. This has led it to
attempt to influence trends in car ownership. Past efforts to curb usage have
included increases in the registration tax for luxury cars in fiscal year 2003/04
(April-March), and taxes may rise again in the future. Emissions standards are
scheduled to be tightened gradually, but the government's timetable for the
introduction of stricter emission standards appears very relaxed—the last
Euro 2-standard buses are not expected to be taken out of service until 2019, for
example. Older diesel-powered buses are meanwhile being replaced with

Industry Report: Automotive October 2010 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2010
13 Hong Kong

vehicles fuelled by liquefied petroleum gas (LPG), and officials are encouraging
owners of other types of vehicle to fit emission-reduction technology. A three-
year programme to phase out diesel-engined commercial vehicles that comply
only with Euro 2 standards has also begun. These measures may stimulate
demand for commercial vehicles to replace those taken out of service, but past
government efforts to encourage switching through fiscal incentives have had
only limited success.
Sales of "eco-friendly" and fuel-efficient vehicles will continue to benefit from
government support. A total of 29 models are now eligible for tax breaks, and
these accounted for around 11% of newly registered private cars in May 2009.
The 2008/09 budget extended concessions on the FRT for low-emission private
cars to commercial vehicles that meet the more demanding Euro 5 emission
standards, with the level of discount on the FRT varying from 30% to 100%
depending on the category of vehicle. The 2010/11 budget has again tweaked
tax incentives, allowing enterprises a 100% profit-tax deduction in the first year
of capital expenditure on environmentally friendly vehicles and establishing a
HK$300m (US$39m) fund to encourage the adoption of green technologies,
especially by public-transport companies. Although further tax adjustments to
encourage the use of eco-friendly vehicles cannot be ruled out in the forecast
period (2010-14), they are likely to have only a marginal impact in addition to
the existing measures.
As well as a recent reduction in the rate of FRT payable by those purchasing
new hybrid cars, the FRT exemption for electric vehicles has been extended
until end-March 2014. In 2009 Hong Kong's government bought ten electric
vehicles from Japan's Mitsubishi, and it has promised to buy 10-20 more such
vehicles annually for the next few years. (It expects around 200 electric vehicles
to be supplied to the market in 2010.) The government is also pursuing a
collaboration on electric vehicles with two manufacturers, BYD of China and
Nissan of Japan, and is promoting the spread of facilities for recharging such
vehicles. Over 60 charging stations have been built or are planned across the
territory, almost all of them in car parks.
% of monthly personal Affordability
Item Price (US$) disposable income rank
Regular unleaded petrol, 1 litre (av) 1.81 0.10 21 out of 57
Note. Affordability rank: for each country the price of an item as a percentage of monthly personal
disposable income is calculated. Countries are ranked according to these percentages. The most
affordable country will have the lowest percentage and be ranked first.

Supply. The government has previously rejected electronic road-pricing (ERP)


schemes, but it has continued to carry out consultations on the possible use of
ERP to control emissions and reduce traffic volumes, particularly at peak times.
Advances in technology, coupled with a recent rise in the number of vehicles
on Hong Kong's roads, suggest that such plans could make progress, although
the introduction of such a scheme is unlikely in the forecast period.
Another area of concern is vehicle fuel. The government hopes to improve the
local environment by discouraging the purchase of cheaper, less clean-burning
fuel in mainland China. In pursuit of this goal, it is working with neighbouring
Chinese provinces, notably Guangdong, in an effort to improve fuel standards

Industry Report: Automotive October 2010 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2010
Hong Kong 14

in the areas close to Hong Kong, such as Shenzhen. The Hong Kong government
is also promoting the use of biodiesel through a duty-free policy and is
developing specifications for its use as a vehicle fuel.

Commercial and other The Economist Intelligence Unit does not currently offer analysis of this subsector in
vehicles this country

Commercial vehicle registrations


2005 a 2006 a 2007 a 2008 a 2009 a 2010 b 2011 b 2012 b 2013 b 2014 b
Light commercial vehicle registrations ('000) 3.1 3.5 3.5 4.0 1.8 2.9 3.5 3.7 3.3 3.5
Medium & heavy vehicle registrations ('000) 0.4 0.5 0.4 0.5 0.2 0.5 0.7 0.5 0.5 0.5
Commercial vehicle registrations ('000)c 3.5 3.9 3.9 4.5 2.0 3.4 4.1 4.2 3.7 4.0
Commercial vehicle registration growth (%) 21.2 11.5 -1.9 16.2 -56.1 70.8 23.2 0.2 -10.0 6.3
a Actual. b Economist Intelligence Unit forecasts. c Excludes buses.
Source: Economist Intelligence Unit.

Components Demand. The Chinese central government is attempting to upgrade China's


automotive industry, and this will result in an increase in the use of electronic
devices in mainland vehicles. This creates an opportunity for Hong Kong's
component manufacturers, which have competitive strength in electronics.
Supply. Domestic automotive production in Hong Kong is limited to the manu-
facture of accessories and parts. In 2006 the government established the Hong
Kong Automotive Parts and Accessory Systems Research and Development
Centre, which aims to boost investment in the automotive-parts sector. The
government spent HK$40.7m (US$5.2m) on the centre in fiscal year 2009/10
(April-March), with the private sector providing a further HK$4.1m to projects
that the centre was funding. In 2010-14 the vehicle-parts sector should continue
to benefit from the government's promotion of two of its target "pillar
industries" for economic development in Hong Kong, namely testing and
certification and of innovation and technology.
Nevertheless, local production of automotive parts is still at a very low level.
According to the Trade Development Council (TDC), car audio and security
systems are areas of strength. Hong Kong is also a centre for trading accessories
and components. Among the goods exported are radios, electronics (including
audio and visual systems), tyres, safety glass, mirrors, locks, seats, lead-acid
batteries, lights, alarms, navigational equipment, wiring sets, counters and
meters, exhaust systems and engine parts.
Hong Kong's vehicle-parts industry comprises around 120 manufacturers and
more than 1,000 import-export businesses, together employing over 6,000
workers. TDC officials reported that exports by the industry reached HK$13.5bn
(US$1.7bn) in 2008, but less than 0.5% of the products making up this total
were produced domestically. The US, the EU and China were the largest
markets, accounting for 18.3%, 23.5% and 26.2% of automotive-component sales
respectively in 2008.
However, few parts producers in the territory are first-tier suppliers of major
Japanese, European and US automotive manufacturers. This is partly owing to
their lack of a track record, itself linked to the absence of local car production.
This may change, as parts producers in Hong Kong are developing links with

Industry Report: Automotive October 2010 www.eiu.com/automotive © The Economist Intelligence Unit Limited 2010
15 Hong Kong

the automotive production sector on the Chinese mainland, taking advantage


of the Closer Economic Partnership Arrangement (CEPA) with China. Under the
CEPA, local manufacturers of many types of components receive greater
concessions than those offered to producers from other countries. Hong
Kong-based firms already own many factories producing car components in
mainland China.
Hong Kong Productivity Council: www.hkpc.org/html/eng/common/index.jsp

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