The remarkable progress of China's automotive industry has culminated in the development of a significant tire sector.

Following China's accession to the WTO in late 2001, the growth rates for both sectors accelerated. To fulfill its ambition to become the main base of operations for leading foreign auto companies, it is imperative that China develop a world-class tire industry.

In doing so, the country would become more attractive to leading automakers. Ready access to high-quality tire would enable these companies to streamline their supply chains and purchasing operations while avoiding costly tire imports.

With an estimated value of nearly US$6 billion in 2002, China's tire industry is large and poised for further high growth, bolstered by the rising fortunes of automobile manufacturers.

This industry is still largely driven by the multinational tire companies like Michelin and Bridgestone and their joint-venture partners, with Michelin alone accounting for 30 percent of the replacement tire market.

Domestic players are relatively less skill-intensive, use simpler production techniques and have somewhat inconsistent quality standards. These domestic tire companies are also financially weak, which explains their relatively lower investment in research and development facilities.

Although a considerable segment of the tire industry is concentrated in the Jiangsu, Shandong, Shanghai and Shenyang areas, the domestic tire industry is still largely scattered across the country. This has resulted in a lack of cooperative synergies.

Foreign multinationals, on the other hand, are more prone to cooperation in areas such as purchasing and research and development activities. For instance, Goodyear tires by purchasing a minor stake in Sumitomo tires, has taken steps to form a strategic alliance with its Japanese counterpart to share their marketing and purchasing operations.

The domestic companies, owing to their lower investment in research and development, also produced relatively obsolete products. Their production volumes also lagged behind their multinational counterparts.

The average annual tire output of China's domestic players in 2003 is approximately 410,000, considerably behind the 2.7 million produced by foreign tire companies in China.

To become a leading player in the global tire industry, it is imperative that domestic tire companies rectify these weak-nesses by developing more sophisticated production techniques.

(Shenzhen Daily December 13, 2004)