China's entrance into WTO in December 2001 was the spark that re-ignited the growth of China's automotive industry. In successive years following WTO accession, vehicle sales increased by 37% to 3.2 million vehicles in 2002; 35% to 4.4 million vehicles in 2003; and a further 15% to 5.1 million vehicles in 2004. As the third largest automotive market in the world, behind only the US and Japan, China is now poised, with annual prospective growth rates ranging from 10% to 15%, to equal or surpass Japanese production in 2010, and US production in 2020.

The rapid development of China's automotive market, coupled with an increase in customer expectations with regard to the quality and technological features of the vehicles that they purchase, has attracted many new technologies to China. This is helping to close the technological gap which exists between China's automotive industry and those of more developed countries.

ASIMCO Technologies' view is that China's technological gap with the developed markets will close by 2010 as additional players, and additional investments by existing players, bring needed technologies to China.

Once a level playing field in technology has been reached, and any technological edge on the part of overseas companies has been eliminated, assemblers in China will compete on the basis of the suitability and attractiveness of their products to consumers in China, as well as cost.

In the short term, localization of component production in China will be a key focus for China based assemblers. Over the longer term, designing products that meet the taste, functional and cost requirements of the Chinese consumer will become increasingly important.

Once existing technologies from other parts of the world have been fully absorbed, the China market may follow a development path that is somewhat different than automotive markets in other countries or regions. Since the cost perspective in China is vastly different than the cost perspectives in the US, Europe or Japan, cost considerations and affordability will be particularly important issues in China. Moreover, as the China market grows, the industry will face enormous pressure to reduce emissions; improve fuel consumption; and lessen the overall impact of a higher level of vehicle availability on the environment.

The challenge faced by the China automotive industry will be to make vehicular transportation more affordable and more available to the vast majority of China's 1.5 billion population, without bankrupting the country from an environmental point of view. For these reasons, the Company believes that China is likely to be an 'early adopter' of new technologies which promise to make vehicles lighter, cheaper, more fuel efficient and more environmentally friendly. In order to drive technological development, China will also mobilize its vast engineering resources, orienting those resources to research and development activities designed to create new technologies.

In summary, a large, rapidly growing, China market, combined with significant cost, fuel, and environment pressures on the China automotive industry, will make the China automotive industry a huge laboratory for product and technological development in the coming years. As newer technologies gain production scale in the China market, many will find applications in other markets, and the China automotive industry is likely to switch from being an 'importer' of technology, which it is today, to being an 'exporter' of technology in the future.