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Local vehicle makers stuck in the slow lane

By Jia Xinguang (Global Times)

10:48, January 17, 2013

Even though passenger vehicle sales in China climbed to a record high last year, the country's indigenous auto producers saw their passenger car sales grow by a paltry 3.9 percent relative to 2011, below growth rates posted by foreign manufacturers or joint-venture (JV) companies established between foreign and local carmakers, the China Association of Automobile Manufacturers reported Friday.

Chinese carmakers remain weak in their home market largely because branding, safety and technology concerns have kept them in first gear.

Local carmakers have long suffered from the fact that China had no established national recall regulations requiring or incentivizing the country's auto manufacturers to take defective cars off the roads until the State Council finalized such a system on October 10, 2012.

Without stringent oversight, only three local carmakers - Chery Automobile Co, Zhejiang Geely Holding Group and Great Wall Motor Co - voluntarily issued recalls on their vehicles. Of course, savvy Chinese car buyers were aware of this fact and steered their attention toward vehicles from foreign or JV manufacturers, who frequently order recalls in order to maintain their reputations and strong brand images.

Also, domestic auto part companies, which should ideally be supporting the advancement of homegrown cars, have shown themselves to be quite weak when it comes to designing or refining their products. As a result, many local carmakers have little choice but to import critical parts from overseas.

Indeed, China's 20,000 auto part makers control just 20 percent of the local market as they primarily limit themselves to producing smaller items that don't require high degrees of precision.

While the quality and reliability of imported parts may be high, imports raise the production costs of cars from domestic brands and ultimately make them less competitive.

Over the past several years, homegrown auto companies have rushed to form JV tie-ups with their overseas competitors as a way to overcome their technological challenges. According to terms set down by market regulators and policymakers, foreign car companies are supposed to transfer their technology to their Chinese JV partners in exchange for access to the booming domestic market.

In practice though, things have not worked out the way planners or local car companies may have hoped. In fact, most Chinese car companies involved with JVs have not received the technology they were promised and have largely been locked out of the design and development operations being carried out by their foreign partners. With little technology trickling down into the domestic car industry, local auto companies remain at a disadvantage on their home turf.

The author is an independent auto commentator. [email protected]

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