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China to play increased role in global tire industry—GITI Tire's Dr. Tan

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CLEVELAND—China, the world's largest producer of tires, is focusing now on expanding technology and developing a skilled labor force, GITI Tire Co. Ltd.'s executive chairman said in his keynote address at ITEC 2012.

“China has relied mainly on labor and growth,” said Dr. Enki Tan, “but that is coming to an end.”

Dr. Tan, whose address was organized by the Tire Society, said the impact of China on the tire industry and the general global economy has grown in the past 20 years, and said that trend will continue.

“About 60 percent of the growth in the world is going to happen in Asia over the next 20 years,” he said.

“The shift of this growth and economies is happening and will continue as we speak, due to demographics.”

The age of the working population in China has been falling since 2010. That will have an impact in the future for the nation, he said.

“It's consumers that are going to drive high growth and the increase in income,” he said.

Today, Dr. Tan said, China is about to take first place in GDP and become the biggest trader, surpassing the U.S.

With the growth of China's middle class, the demand for everyday items including automotive products was expected to increase.

“Since the 2008 global financial crisis the production of cars has decreased,” he said.

“Shift of the production (of cars) has increased dramatically into emerging markets.”

During the next couple of years, he expects China will produce about 16 million to 18 million cars annually, while the U.S. will make 10 million to 11 million. That increase in China means higher demand in the country for replacement parts for vehicles.

“Up until now, China has relied mainly on labor and capital investment to drive GDP growth,” he said.

“This is coming to an end due to some of the factors that I have mentioned; due to China has to move into an intensive growth phase.”

Dr. Tan said the country's current five-year economic plan—which he called “socialism with a Chinese flavor” and the “secret sauce” of Chinese development—seeks to foster technological growth. Rebalancing the economy, creating innovation, enhancing education and priority industries requires everyone in China to work together, the executive said.

The last 30 years of China's growth primarily was driven by the will of the government. “But going forward, really the will of the people and the consumers plays a critical part in this,” he said.

Basic human needs for housing, health care and education must be met, Dr. Tan said.

“If you want to transition into a consumption economy, you need to have people confident that their future is taken care of and they will then have the confidence to consume,” he said.

“Our aim is to have competitive companies, but we also want to have commercially viable industries,” he said. “We must do something exceptional to survive.”

China's role in the tire industry and other key businesses will increase in the future, the executive said.

“You look at automotive production today and the markets and it's no doubt that China would play a bigger part in setting the standards in the automotive industry and tires,” Dr. Tan said. With most of the world adopting a green approach to business, companies within China are following suit, he said.

At the same time, he called government subsidies of industry “perverse” and urged governments to resist using them, because they cause artificial expansion of protected industries.

Likewise, he criticized tariffs as largely “designed to block job losses” and therefore ineffective in solving trade problems long-term.

Addressing China's role in the global economy, Dr. Tan said the nation's current five-year plan addresses growth through enhanced focus on innovation and technology.

It will result in a measurable transition in Chinese culture, especially affecting the demographics of the Chinese population.

 In terms of the development of the global tire industry, Dr. Tan singled out five areas where China is bound to play an increasingly important role: standards, research and development, raw materials, manufacturing and markets.

Bruce Davis, Tire Business special projects reporter, contributed to this report.
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