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Chinese Tire Industry Update: Focus on Overseas Expansion Amid Geopolitical and Economic Uncertainty

The Chinese tire industry, the global powerhouse in production and consumption of tires, had one of the most challenging years in recent history in 2018. Sagging domestic demand and the U.S. sanctions hit the industry very hard. 

Overview of China’s Tire Industry

In 2018, the Chinese tire industry had to undergo a slowing economy, more stringent safety and environmental protection inspections conducted across the tire factories in the country, and the fluctuation of major raw material prices, as well as uncertainties in the geopolitical and economic situation around the globe.

A number of mid-sized and smaller tire producers in China were squeezed in last three years by rapidly changing demand dynamics in the domestic market, tariff barriers in export markets and increasing raw materials and labor costs. On the other hand, government-driven requirements for supply-side reform, environmental legislation, and supply side and industrial reforms are making it tougher for these smaller companies to survive.

The Shandong Province in China is home to more than 300 small- and mid-sized tire producers. From 2017 to August 2018, 35 tiremakers in the province have been shuttered and declared bankruptcy.

Dubbed as China’s tire capital, Dawang town in Shandong Province, which houses a huge number of tire producers, is in very bad shape. A number of mid- and small-scale tire producers in the town have been forced out of business. In addition to a number of mid- and small-scale tire producers, the town is home to three major tire makers, namely Shandong Hengyu Rubber Co, Shandong Jinyu Tire Co. and Shandong Yongtai Group.

In November 2018, Shandong Yongtai Group (Durun tyre factory) had to declare bankruptcy, prompted by a number of internal and external factors.

According to the China Rubber Industry Association, “Environmental inspections, more expensive raw materials, rising costs and trade friction are the major factors pushing China’s rubber tire industry toward more intense competition. The phase-out of less competitive firms will make way for the more competitive producers. Besides quality improvement and smart manufacturing that reduces costs, globalization and differentiated product portfolios can help these struggling companies.”

Largest Global Carmaker Faces a Historic Drop

China’s car market has not only been the significant driver of the Chinese tire industry, but also one of the most reliable engines of global growth for decades. However, that all might be coming to an end. The world’s biggest vehicle market saw its first annual drop in automotive production