|During the year 2016, China’s economy continued to grow at a moderate pace, with an increase in GDP of 6.7% which was the slowest in 26 years. In spite of the slow economic growth, driven by government purchase tax incentives for small engine cars, China’s total vehicle sales jumped 13.7% during the year, the fastest pace in three years and reaching 28.0 million units, according to the China Association of Automobile Manufacturers. Passenger vehicle sales also hit a new record in 2016, achieving 24.4 million units or an increase of 14.9% during the period. Although premium vehicle sales had not been able to benefit from the purchase tax concession owing to bigger engine products in general, the premium passenger vehicle segment still delivered solid growth in line with the overall passenger vehicle market, mainly driven by new product launches during the year.
The year 2016 marked the beginning of next phase development and a multiple new product launch cycle for our BMW Brilliance joint venture (“BBA” or the “JV”). The capacity expansion project at the Tiexi plant was completed at the beginning of the year with the addition of an all-new front-wheel-drive production platform. Together with the Dadong plant, the JV has reached total annual production capacity of over 400,000 units providing for products of different architectures. In addition, the new engine plant in Tiexi had also commenced operation at the beginning of the year, enabling the JV to produce the brand new 3 and 4-cylinder BMW engines locally. These new facilities have provided support to the JV’s new product launches starting with the brand new 2-series Active Tourer and the next generation X1 long-wheelbase which were introduced to the market in March and May of 2016, respectively.
The addition of the 2-series Active Tourer as the fourth locally produced BMW product, and the first to be produced using the new front-wheel-drive platform, had contributed newly added volume in 2016. Sales of the new and improved next generation X1 equipped for the first time with a long-wheelbase to cater to Chinese customer demands have also ramped up quickly since its May 2016 market launch. Alongside these new launches, our 3-series and 5-series continued to deliver steady sales amid a very challenging market. As a result, BBA achieved sales of 310,026 BMW vehicles in 2016, representing an increase of 8.0% when compared to the previous year.
BBA has continued to expand its dealership network which had reached 463 full service 4S shops nationwide as at 31st December, 2016. The JV continues to work closely with its sales organization on all fronts in an effort to sustain the profitability of both the JV and its dealers. Our JV’s sales activities will continue to be supported by the BMW auto finance company, resulting in increased sales volume and profits to the JV.
We continue to be confident about the long-term growth prospects of the Chinese premium auto industry. We believe the new products to be introduced by BBA over the next few years will have strong customer appeal, and will broaden and also better tailor our product portfolio to Chinese consumers’ preferences. Cost reduction, operational efficiency, sales volume enhancement, component localization, new energy product development, and further integration of our JV into the BMW network via exports of vehicles and components from China will all remain key focus areas for the JV.
As for the minibus business, the traditional Haise and Granse products had achieved stable sales volume in 2016. Sales of the Huasong MPV model, however, has been disappointing, as further efforts are still required in promoting brand recognition and re-evaluating market opportunities. The Group is also considering various routes of potential strategic moves, including, but not limited to, an attempt to explore the possibility of cooperation with a new business partner, to turnaround its minibus operation over time. However, it is likely that the minibus and MPV operation will continue to have a negative impact on the Group’s overall financial performance in 2017.
Brilliance-BEA Auto Finance Co., Ltd (“BBAFC”), the Company’s auto finance subsidiary in China, had once again achieved profitability in 2016. In addition to supporting the Group’s sales of its minibus and MPVs and our major shareholder Huachen’s sedan products for both wholesale and retail, in December 2016 BBAFC has also successfully initiated a strategic partnership with Jaguar Land Rover to finance their customers and dealers in China. BBAFC will continue to seek expansion to provide finance and insurance support to multi-brand businesses over time.
The year 2017 continues to be a very challenging year for the Group. Maintaining the prominent position of BMW Brilliance in the premium auto market remains the Group’s business priority. Apart from that, the Group will continue to identify new business opportunities as well as ways to further streamline its existing operation and corporate structure as its business continues to grow.