China's Auto Industry at the Crossroad

The century-old world automobile industry has experienced two major reorganizations. The first one took place during the industrialized countries' internal merger that started in the early years of the 20th Century. Scores or hundreds of automobile factories in these countries were merged into three or four large groups; the second one was a new round of a worldwide major reorganization happened in the late 1990s, which was initiated by the German Daimler-Benz's purchasing the US Chrysler three years ago. For today's world auto industry pattern, authoritative persons give their latest summary as "6+3", i.e., six groups: General Motors (GM), Daimler-Chrysler, Ford, Toyota, Volkswagen and Renault; and three independent companies: Honda, BMW and Peugeot. Although the merger or reorganization has not been started in China and Russia's automobile industry, yet the principal part of the "6+3" pattern had taken shape.

At the turn of the century, China's automobile industry encountered multiple challenges: impending WTO entry, the fierce marketization competition, the rigorous pressure on environmental protection and energyˇ­plus a new round of global merger and reorganization, China's automobile industry is faced with three choices:

First, getting close to the three domestic large groups, i.e., reorganize China's automobile industry through assets transfer and stock share, based mainly on the three groups developed with the nation's help: the First Automobile Works (Changchun) (FAW), Dong Feng Motor Corp. and Shanghai Auto-industry General Corporation. After 50 years of large-scale construction, China's automobile industry did make a certain achievement: gathered together the talents and cultivated the market. During the ninth Five-year Plan period, the country invested 58.8 billion yuan in its automobile industry, 80 percent of which were distributed to 13 large enterprises. For the future, three nationwide groups can be set up under the direction of the governmental policy. Recently, Shanghai Auto-industry General Corp. has taken giant strides forward in merger and reorganization. It has brought into the group several powerful auto enterprises; meanwhile, Shanghai Auto-industry General Corp. also entered into successful co-operation with VW and GM. It has outstripped the old to become the largest auto group in China. With government support, the closed merger and reorganization based on the three large groups will be much easier. The problem here is that monopoly is apt to result in low efficiency.

Second, adopting an open investment system, i.e., breaking the limitation on the industry "accession" with the tints of the planned economy, unclogging the various domestic investing channels, pumping the abundant private capital into the motor industry with long-standing shortage of investment, transforming government monopoly management of everything, big or small, into an enterprise self-discipline system, and restoring the auto industry to what it was as a competitive sector. In recent years, the private enterprise Shanghai Brilliance Group successfully reorganized the Shenyang Golden Cup Co. through capital operation, so that its product, the Golden Cup Sea Lion station wagon, has had over half of the market share. The advantage of opening the investment channels is to fully encourage competition and give a full play to the role of the "catfish effect" of the fledgling automobile industry which will reactivate the "stagnant" Chinese auto industry. However, the point here is: without the set-up of some sort of technology and capital threshold, there would be a general rush into action, leading to redundant construction at a low level. Therefore, competition should be based on two premises: first, the enterprise should finally be able to participate in international competition; second, within the 5-6-year protective period after joining the WTO, the enterprise should be able to make automobiles up to advanced international technological and price levels.

Third, joining transnational groups. Most of the Chinese mobile enterprises nowadays are joint ventures. The Chinese side only holds half or more of the shares. Some people suggest allowing foreign groups to control the shares after China's entry into the WTO, so that both sides can develop together. Now that the "6+3" pattern has become a final conclusion, so they ask: what need is there to strive for? As long as there are the joint ventures, such as VW (China), GM (China) and Toyota (China), workers will have jobs and the nation will have tax revenue. In 2000 when the talk about the intention of Volkswagen (Germany) to buy up Chinese joint ventures was published in the British "Financial Times, the talk was so straightforward that it woke up many people in the automobile circle from their dreams. We must realize that without a greater part of the shares, we would be slung out at any moment by those foreign groups in control of technology, especially their product development orientation.

Daimler-Benz's merging the Chrysler is a warning to us. Globalization brings both opportunities and challenges to China's automobile industry, however, globalization is not integration. China must have its own key industries. We cannot easily give up the automobile industry as it is a pillar industry for the country's economy. Joint ventures must be set up on a "win, win" basis as their target. After having offered our huge market, we are qualified to have the decision-making power over enterprise development, returns on investment, it is absolutely not merely for the purpose of employment opportunity and tax revenue.



By PD Online staff member Du Minghua


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