China's Automobile Industry Examines Directions for Future Development

Collaboration with foreign partners seen necessary for China's automobile companies

July 15 is a notable date in China's auto industry, since it was on this day in 1953 that the country's first automaker, First Automobile Works (FAW), set up its first auto plant near the city of Changchun. FAW recently celebrated its 60th anniversary.

Over the past six decades, China's automobile industry has grown from a single small auto plant to the largest in the world. It has withstood the challenge from foreign competitors, and has even sought out mergers, acquisitions, and joint ventures with foreign automakers.

There remain, however, other challenges to overcome. Market oversupply is a worry for most automakers, and they still have a long way to go to gain technological independence from their joint-venture foreign partners.

Sales and Technology Upgrading
According to projections made by the China Association of Automobile Manufacturers (CAAM), annual sales of China's top six automakers—FAW Group, SAIC Motor, Dongfeng Motor, Chang-an Motor, GAC Group, and Beijing Automobile Works (BAW)—will exceed 28 million units by 2015. At the same time, sales by six smaller manufacturers--Chery, Geely, BYD, Great Wall Motors, Brilliance China Motor, and JA--will total 12 million units.

This means that the annual sales of China's 12 leading automakers alone will soar to 40 million units in 2015, and smaller firms will add more to that total. This prospect prompts Su Hui, chairman of the Beijing Branch of the China Automobile Dealers Association (CADA), to comment: “The oversupply problem that afflicts China's car market will become even worse in the coming years.”

In Su's view, although China's auto industry was born 60 years ago, it began to make rapid progress in sales and technology upgrading only when Chinese automakers established joint ventures with foreign partners. Today, almost all of the world's major automobile companies have joint ventures with Chinese automakers, and all of China's leading state-run automakers have foreign partners, mainly for technology transfer. According to CAAM statistics, joint brands dominate car sales in China; among the 10 best-selling brands there in the first half of this year, only Geely and BDY were local brands and the other eight were all joint brands.

Most foreign automakers have garnered considerable profit through their joint ventures with Chinese partners over the past decade. The Chinese companies are reported to serve only as “original equipment manufacturers” that use advanced know-how from their foreign partners.

Industry Report
The “Report on the Automotive Industry in China (2013),” also called the “2013 Blue Paper of the Automotive Industry,” released by China's State Council on July 17, 2013, outlines the directions that China's automobile industry will take in the future.

With “Internationalization of the Chinese Automotive Industry under Globalization” as its theme, the Blue Paper spells out the necessity of joint investment and cooperation in development while exploring the present state and future course of progress in the Chinese automobile industry.

The Blue Paper, jointly compiled by the State Council's Development Research Center, the Society of Automotive Engineers of China, and the Volkswagen Group China, was the 6th such report that the three have produced since 2008.

The Blue Paper is concerned mostly with two topics: joint venture development under globalization, and the Chinese automobile industry's collaboration with foreign partners. It gives a comprehensive narrative of China's past 30 years as a developing nation and details how the country was able, by opening itself to cooperation, to develop into an internationally competitive automotive powerhouse.

The report discusses in depth how the Chinese automobile industry, under the new conditions of globalization, was able to transform itself, to rise to meet new challenges and opportunities, and to form joint ventures so as to bring in more revenue. At the same time, the document points the way to how China's automobile industry can better address the issues it currently faces and grow bigger and stronger in this ever-changing world.

Viewpoints
Upon releasing the report, Fu Yuwu, director of the Society of Automotive Engineers, stated: “Since entering the 21st century, China's car industry has been in a critical stage of accelerated emergence. Although domestic Chinese brands have in some respects won advantages, and there have been some achievements from the acquisition of foreign resources, we nevertheless find ourselves facing enormous challenges and difficulties.

“The rough style and disorderly competition of the industry's acquisition of foreign resources needs to be changed soon. China's automobile enterprises need to acquire a long-term development outlook and grasp the details of swiftly establishing the international image we deserve.”

The acquisition of foreign resources, which the Chinese call “going abroad,” is a strategic choice for the development of China's car industry. It is not something that can be achieved overnight, but is a grueling process which entails “earning by doing” and evaluating situations and seizing opportunities to learn from the experiences of advanced countries. At the same time, Fu said, it is necessary to harness the different functions of trade, enterprise, and government, and move forward as one collective force.

Feng Fei, Head of the Industrial Research Division under the State Council's Development Research Center, remarked: “With economic globalization, entering into cooperation with foreign partners has become a necessary choice for all countries in developing their car industries.” Since joining the WTO, China has been actively attracting foreign investment and liberalizing its automobile trade. According to Feng, the open competition of the past decade has proven to be a winning situation for China's auto industry.

“In these conditions of joint development,” Feng commented, “foreign enterprises are earning income from China's rising automobile market while at the same time bringing in advanced technology, management concepts, and product development. This not only stimulates technological progress in China's vehicle enterprises, but also greatly benefits Chinese consumers.”

Feng believes, however, that joint ventures in China's auto industry now face new challenges and opportunities as they move toward globalization. “During this new transitional period,” he explained, “China's automotive industry needs to maintain its healthy development within a more open environment.”

Zhang Suixin, Volkswagen China's executive vice president, noted that “Volkswagen is a joint venture pioneer, promoter, and also beneficiary. In helping our partners, we are constantly growing. While cultivating talent for the Chinese automobile industry, the Volkswagen Group is also winning over millions of users here.”

According to Zhang, China has now become a vital factor in the Volkswagen Group's realization of its “Strategy 2018.” Hence, he continued, “we must not only continue to increase investment in China, but also to deepen cooperation with the government, research institutions, and so on so as to bring about a long-term, sustainable situation that is beneficial to all.”