Despite the worries over excessive consumer credit and the need to control “unofficial” lending, the Chinese economy marches on with a growth rate of more than 7% achieved in 2013 and expected again in 2014.
When considering the much-discussed “slowdown”, it is worth remembering that a higher base means that GDP added today is greater than three years ago, meaning recent negative economic comment can be deceptive. With economic growth comes personal financial confidence and, with more than 20m vehicles sold in China last year, that confidence is certain to be passed on to the lubes industry.
However, after 20 days of hazardous smog in the nation’s capital last year, pollution and people’s health is a real concern and is now one of the biggest issues for regulators to tackle. While the academics debate the exact causes of pollution in Beijing, the government’s message to lubes producers and automakers is clear: clean up.
On Baidu, China’s biggest search engine by far, “hazy weather” was fifth most-searched event, and PM2.5 was also the third-most searched term in the “trending” category. This is perhaps unsurprising given that Chengdu has recorded PM2.5 levels of 450 and Beijing 197. To put that into context, London rarely exceeds 30 and is normally below 20.
Many lubes producers have already heard the call. Shell has introduced PurePlus technology to its popular Helix line and Dongfeng Lubricants has committed $132m to lubricants that meet increasingly stringent government requirements. International and domestic majors should be able to use financial clout to remain clean and competitive.
However, it may be a different story for smaller, local lubes producers. A lab report from south China’s Guizhou province showed that 16 separate lubes producers were distributing products that did not meet the API standards declared on the labels. The batches, sourced from local 4S dealerships, were intended for use on motorcycles and may be taken off the shelves until the producers improve quality.
A recent consumer report testing both domestic and international brands showed foreign producers were still more advanced than their local counterparts. Of the products tested, Mobil 1, Shell Helix and Castrol Edge were the best performing lubes, followed by Great Wall Justar and Kunlun’s Tianyuan. Interestingly the quality of lubricants varied greatly even amongst majors.
The sheer number of lubes producers and quality codes will make life challenging for regulators keen to stay on top of central guidelines. How long will it be before the Chinese market adopts a code like VLS (UK) or FSQ (Germany)? This is a global issue, not one restricted to the Chinese, European or US markets.
Equally, consumers will face difficulties choosing between expensive international brands and cheaper - but potentially more variable - local brands. The findings in Guizhou may provide a significant marketing opportunity for demonstrably good local producers to differentiate themselves from the competition. This emphasises the need to build brand strength and have a good recommendation systems.
Consumers in second and third tier Chinese cities are increasingly connected to mobile internet. Having a web-based system that enables them to select the correct product from a local producer will certainly help them to make an informed purchasing decision.
To find out more about how OATS Global Solutions can keep you ahead of the competition, simply contact Diana Shen. We look forward to hearing from you.
In the meantime, may I wish you all a very Happy New Year of The Horse.
Sebastian Crawshaw
Chairman and owner, OATS