By on December 17, 2009

NOFORN in Chinese. Picture courtesy angelgracia.com

When I came to China for the first time in 2004, after-work congregations of foreign executives who worked for Chinese auto joint ventures usually went like this: Someone muttered into his Tsingtao beer, or something stronger: “The Chinese will want us out within eight years.” Upon hearing this, all others around him nodded gravely, and another round was ordered. Over the years, more and more expats were sent home to Detroit, Wolfsburg, and Aichi. The silly “twin” system (a foreigner and a Chinese on the same job) stopped. Of course, the open secret was never officially discussed, but the outcome appeared to be inevitable: The days of the foreigners are numbered.

It will be 2010 within a few weeks, and the foreign (U.S., European; Japanese) joint ventures are still seemingly safely ensconced in China. As reported umpteen times at TTAC, China has become a strategically important market for most auto manufacturers. Nobody thinks anymore that come 2012, China will kick all joint venture partners out.

Yet, here is the first step in that general direction:

By 2015, China wants half of passenger cars, including sport utility vehicles, sold in China to be self-developed by Chinese automakers, the Shanghai Securities News says (via Gasgoo.) No sources are named, but the paper is owned by the Chinese government.

50 percent homegrown by 2015 is no ambitious goal. Currently, 44 percent of all passenger cars sold in China don’t carry a foreign badge. Six percent more in 5 years, big deal.

With sedans, the matter becomes more interesting. Indigenous sedans hold a 29 percent share of the Chinese market, according to official data cited in the report. The Chinese government wants to see that share grow to 40 percent of the market by 2015.

In the first half of 2010, the Chinese government is expected to publish guidelines to the above effect. The guidelines are also expected to demand that Chinese companies hold at least 50 percent of any newly-formed joint ventures that make alternative energy cars, batteries and key components. This pours water on the hopes of foreign automakers that they could some day be the sole owner of a Chinese car manufacturer. It’s going in the opposite direction.

The bottom line is that the car executives who were crying in their beers were wrong (again…) and that the status quo will continue in the foreseeable future, albeit with a gradual, step-by-step Sinofication..

Anyway, many supposedly “domestic” cars rely heavily on foreign platforms, foreign technology, and sometimes heavy foreign design inspirations. Witness the parts of Saab being carted off to Beijing, where they will emerge as allegedly domestic cars. The total domestication of the Chinese car industry will take much, much longer. But one thing becomes clear: In the long run, China wants to stand on its own four wheels when it comes to cars. The guidelines (if they will be as reported …) will be the first official step in that direction.

Will China Boot Foreign Car Manufacturers?

When I came to China for the first time in 2004, after-work congregations of foreign executives who worked for Chinese auto joint ventures usually went like this: Someone muttered into his Tsingtao beer, or something stronger: “The Chinese will want us out within eight years.” Upon hearing this, all others around him nodded gravely, and another round was ordered. Over the years, more and more expats were sent home to Detroit, Wolfsburg, and Aichi. The silly “twin” system (a foreigner and a Chinese on the same job) stopped. Of course, the open secret was never officially discussed, but the outcome appeared to be inevitable: The days of the foreigners are numbered.

It will be 2010 within a few weeks, and the foreign (U.S., European; Japanese) joint ventures are still seemingly safely ensconced in China. As reported umpteen times at TTAC, China has become a strategically important market for most auto manufacturers. Nobody thinks anymore that come 2012, China will kick all joint venture partners out.

Yet, here is the first small step in that general direction:

By 2015, China wants half of passenger cars, including sport utility vehicles, sold in China to be self-developed by Chinese automakers, the Shanghai Securities News says (via Gasgoo.) No sources are named, but the paper is owned by the Chinese government.

50 percent homegrown by 2015 is no ambitious goal. Currently, 44 percent of all passenger cars sold in China don’t carry a foreign badge. Six percent more in 5 years, big deal.

With sedans, the matter becomes more interesting. Indigenous sedans hold a 29 percent share of the Chinese market, according to official data cited in the report. The Chinese government wants to see that share grow to 40 percent of the market by 2015.

In the first half of 2010, the Chinese government is expected to publish guidelines to the above effect. The guidelines are also expected to demand that Chinese companies hold at least 50 percent of any newly-formed joint ventures that make alternative energy cars, batteries and key components. This pours water on the hopes of foreign automakers that they could some day be the sole owner of a Chinese car manufacturer. It’s going in the opposite direction.

The bottom line is that the car executives who were crying in their beers were wrong (again…) and that the status quo will continue in the foreseeable future, albeit with a gradual, step-by-step Chinesification..

Anyway, many supposedly “domestic” cars rely heavily on foreign platforms, foreign technology, and sometimes heavy foreign design inspirations. Witness the parts of Saab being carted off to Beijing, where they will emerge as allegedly domestic cars. The total domestication of the Chinese car industry will take much, much longer. But one thing becomes clear: In the long run, China wants to stand on its own four wheels when it comes to cars. The guidelines (if they will be as reported …) will be the first official step in that direction.

NOFORN in Chinese. Picture courtesy angelgracia.com

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15 Comments on “(When) Will China Boot Foreign Car Manufacturers?...”


  • avatar
    mpresley

    The Chinese will use Western technology as long as it’s available, and better.  The question is, once the Chinese market is saturated, what’s next?  That’s a long time in the future, but an interesting question nonetheless.  There is India, but other than that, and short of foreign colonization of Africa, there is no other area with an indigenous population sophisticated enough to embrace advanced manufacturing, or with the potential to buy expensive manufactured goods on a sustainable basis.  With the US on it’s way to de facto bankruptcy (probably just be a continued but accelerated debasement of the currency) I don’t see much growth here.  I suppose we could be driving Chinese cars down the road, since they make everything else we buy.

    • 0 avatar
      John Horner

      China is graduating far more engineers and scientists than the US is. The US continues to encourage its young people to go into banking and lawyering whilst treating work in industry with the sort of disdain the UK often does. It is only a matter of time until western technological superiority is a memory.

  • avatar
    Stingray

    Saturation of chinese market? WTF is that? How can you saturate a 1+ billion people market?

    They will suck the western technology tits until they need them. Them it’s flood time.

  • avatar
    NulloModo

    China is in a unique position.  In the past the Chinese have been able to manufacture goods for pennies on the dollar compared to western nations due to the dramatically lower wages offered and virtually no safety, environmental, or intellectual property regulation.  As China continues to grow in GDP, and as its citizens start to acquire more matieral wealth, with more approaching the western standard of living, a lot of China’s previous strengths in the market are going to melt away.
     
    Right now China has a need for western partners neither for technology sharing nor for engineering instruction.  If you’ve looked at the graduating class of any good masters or doctoral engineering program in the US recently, you’ll see that we are well on our way to educating the next wave of China’s engineers.  As far as technology goes, China has proven time and time again that if they want something, they will just steal the design.  The Western partnerships are for distribution channels and appearances only.  China needs to improve its image in the international business community until it can come up with some way to get away from its current slave-wage fueled, environmental hazard ridden, piracy driven business model.

    • 0 avatar

      Right now China has a need for western partners neither for technology sharing nor for engineering instruction … As far as technology goes, China has proven time and time again that if they want something, they will just steal the design.  The Western partnerships are for distribution channels and appearances only.
      Excuse me, but utter nonsense. All car JVs are targeted at the Chinese market solely. The Western partners provide the technology and know-how, the Chinese provide the distribution channels,  the workers, the customers,  and increasingly, the capital.

  • avatar
    Cammy Corrigan

    Personally, I’m hoping China does something crazy like  push out foreign car makers. If this happens, The United States, Europe, Japan, South Korea, etc won’t take kindly to that and will retaliate. This will set off a trade war and hopefully, kick start another recession. This scenario will have two effects:
     
    1. Slap China about economically. Yes, it is a strong country but not bigger than the rest of the world. China will quickly learn that if you don’t play fair with everyone, everyone might just gang up on you. And the manipulation of the world’s biggest car market, will be the straw to break this camel’s back. Much like Russia tried flexing its muscles until the price of oil crashed.
     
    2. Provide me with some entertainment. I am so bored with life at the moment another recession should alleviate my boredom.

    • 0 avatar

      That’s exactly why they won’t do it. I’m afraid you’ll have to look for alternative entertainment.

    • 0 avatar
      isucorvette

      China holds 25% of our US treasury securities and will likely buy more as American government can’t stop spending money it doesn’t have.  So, although we may want to piss off China and tell them to buzz off if they don’t play ‘fair’, we are so dependent on them continuing to buy our securities.  With no China in the mix, when do you think a failed bond sale will occur in the US’s future?

    • 0 avatar
      YZS

      “2. Provide me with some entertainment. I am so bored with life at the moment another recession should alleviate my boredom”

       
      So this is how they say “let them eat cake” in the modern day.  Good for you, but if you recall history, it didn’t end well for the quote’s originator.

  • avatar
    Steven Lang

    You’re confusing the Chinese with neo-conservatives.
    If you look at China’s history over the last 100+ years, you would realize that most of what the government does is in the interests of stability and control.
    They had revolutions, purges, riots, crackdowns, foreign invaders, famine, civil wars, and an endless number of ‘policies’ that lead to a breakdown in the social order.
    Now? They’re strictly focused on the wealth side of the equation. It drives virtually everything they do as a society.
     

  • avatar
    John Horner

    “Nobody thinks anymore that come 2012, China will kick all joint venture partners out.”
    Not by 2012, but over time they will be kicked, nudged, encouraged, forced out. Our simply bought.

  • avatar
    blowfish

    China is graduating far more engineers and scientists than the US is. The US continues to encourage its young people to go into banking and lawyering whilst treating work in industry with the sort of disdain the UK often does. It is only a matter of time until western technological superiority is a memory.
     
    Deja Vu, just like the 70s, Japan was doing this, so 20 yrs later they cornered all the US and even the World car market.

  • avatar
    psarhjinian

    This will be an interesting (in the “May you live in interesting times” sense) development for VW and GM, who have banked much of the future on China’s growth.  It’s also likely part of the push into the less autocratic BRIC nations (the B and the I, specifically) that so many are undertaking.

  • avatar
    ra_pro

    2 very important issues that are not discussed much:
    1) China has aging population. Aging populations don’t produce scientific breakthroughs and neither do they produce great strides in technological achievement. That’s why Chinese need all the technology they can buy or steal whichever is cheaper and easier.
    2) China’s environment is bad as it is and it’s not gonna get better. In fact it will be a lot worse if the economy is allowed the current expansion.
    Between these 2 issues China will have a hard time just staying the manufacturing hub of the world it is now where workers produce what workers in other countries buy. But I think the Chinese dreams of glory may get the better of them which just may save the GM or VW.   Or maybe not.
     
     

  • avatar
    pf21

    1) Aging population is a problem for Japan and Europe, not for China. The natural birth rate in China is much higher than Japan, Europe, and U.S. if immigration is excluded. All China has to do is to relax the one-child policy, and lower the legal marriage age a little bit (20/22, F/M currently). BTW, having more children is a sure way to boost consumption.
    2) Cleaning up the environment over a course of 30-40 years is no big deal either. It probably will lower Chinese GDP less than 1% every year over the period. Remember, there is no lump-sum payment due for environmental damage!


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