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Chinese Tire Industry’s Surprising Rotation

With so much talk about difficulties between the US and China as far trade and the imbalance for the US on the import-export numbers, including drastic rhetoric predicting a trade war, it should be noted there are other developments. A recent story highlighted the difficulties China has faced in its own domestic tire industry, where the Chinese public has shown a lack of confidence in the Chinese made tires. A stunning percentage of Chinese highway accidents, as much as 43%, were attributed to tire failure, with most of these from tires made in China.

A Call For Imports?

A report by China's Institute of Transportation Research of the National Development and Reform Commission last year pointed out that many Chinese manufactured tires were the cause of highway crashes. Chinese Rubber Industry officials noted that some tire manufacturers, including South Korean companies, were producing tires not up to standard. Eventually six Chinese tiremakers went bankrupt, while South Korea's Kumho recalled all their tires from China, though the company insisted its tires were fine.

The unexpected consequence of this has been the greater influx of European tire manufacturers such as Continental AG from Germany and Michelin of France to build both factories in China as well as making a greater effort to sell more tires in China. European and US tiremakers have not been as heavily involved until recently in the Chinese market. With an increased presence, last year European tiremakers sold nearly $9 billion worth of tires in China.

This year Michelin invested 1.4 billion euros to build a new tire manufacturing plant in Shenyang, Liaoning province which will be set to open in four years. China Daily detailed that Michelin has already established a network for retailing its tires in China, with several thousand outlets. The push by Michelin and Continental is with the idea of selling higher technology, better performing and safer tires to the Chinese public. Continental AG passed the million tire sales mark last year in sales of passenger car tires in China.

China's tire industry has up to now concentrated on regional sales and has done some copying of western technology, but hasn't invested in the more technologically advanced, high traction, better performing tires such as those manufactured in the west. According to a survey of more than 2,000 Chinese drivers in Shanghai undertaken by the China Rubber Industry Association last year, nearly two-thirds of the Chinese public prefers European, US or Japanese tires to their own domestic brands.

Continental Tires Comes To China, May, 2011

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Recent Trade Ruling On Tires

The recent developments in China's tire industry are a fascinating cross current to how the industry had been developing. China had been and still does export its tires, including to the US. A recent WTO ruling upheld previous rulings from 2009 and 2010 that the US was entitled to slap 35% tariffs on Chinese imported tires. According to a Reuters report, US imports of Chinese made tires has fallen by 6 percent in the first half of this year after a decline of nearly 24 percent last year. US imports of tires overall, however, are still growing, at a rate of 9 percent in this year while tire imports increased by slightly more than 20 percent last year. China has commented that the new ruling and tariffs haven't done much to reduce US tire imports, but they are driving China out of the US market.

The Drive To Quality

While the trade rules and relationships overall are quite complex, one tire issue in China appears much simpler: quality. The Chinese tire manufacturers, according to one of its own researchers, need to focus more on long term development and investment in higher quality products. Wang Yiyi, a researcher at China National Institute of Standardization, was quoted in ChinaDaily as saying, "It won't be easy for Chinese tiremakers to take a leading role from foreign hands within the short term." He contrasted the European tire manufacturers' advantages as having developed better knowledge of use of chemicals and materials for the industry as well as a better long term view for quality product improvement.

A Fair Trade Opportunity?

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Michelin Brand And Symbol Finds Its Way To China

While it would be incredibly naïve to suggest that the tire industry situation is somehow going to be worked out in such a way that it will alleviate all trade tensions between western nations --particularly the US-- and China, it's still a fascinating development. China's candid assessment of the shortcomings of its own tire industry and its citizens' clear preference in this case for foreign products, as well as the European manufacturers' seizing of the invitation and opportunity to enhance their position in the important Chinese tire market, seem to have made for a prudent mixture of action, reaction and a possible market based solution. Michelin and Continental AG, as well as well as Sweden's Trelleborg AB have recognized the opportunity to work in and alongside China, to what looks like mutual benefit for both China and the western companies. This might suggest a better paradigm for trade rather than harsh rhetoric or confrontational policies.

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