By on September 20, 2010

In order to produce and sell cars in China, foreign firms are required to form joint partnerships with a Chinese firm. With a ten-year, $15b government EV stimulus in the works, automakers are complaining that a requirement to build EVs in partnership with Chinese firms amounts to government-mandated barrier to market access. A foreign automaker executive complains to the Wall Street Journal that the draft version of the government plan is

tantamount to China strong-arming foreign auto makers to give up battery, electric-motor, and control technology in exchange for market access… We don’t like it.

China’s automotive market is projected to grow faster than most, and with $15b of government assistance, the Chinese government has a big carrot with which to tempt foreign firms into sharing their technology. But the backlash is already building…

After all, China’s efforts to force foreign firms to trade technology for market access are not unique to the auto business. Just this past July, the US Chamber of Commerce complained that China was

forcing foreign technology companies to anguish over balancing today’s profits with tomorrow’s survival

across a number of market sectors. Nor is China the only market playing the technology-for-access game. Russian president Vladimir Putin has made no bones about the fact that he will restrict market access to those firms that make with sufficient investments and technology sharing. And with China aiming to create three-to-five Chinese players in the global EV game, it’s intentions are as clear as Russia’s. The only possible solution, according to the OEMs?

We need to make sure we have a contract or agreement that allows us to continue to own and control the technology, even though we might be a minority stakeholder

With mature markets in the US and Europe showing few signs of runaway growth, China and Russia are trying to leverage their healthy demand into future competitiveness in production. Whether the OEMs play ball in order to sell EVs in China, where electric cars have no record of sales success, or in Russia which exhibits far less potential for overall growth, remains to be seen. Either way, expect trade tensions to play an increasingly important role in the global car business going forward.

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8 Comments on “Will China Demand Technology Sharing For EV Market Access?...”


  • avatar
    Contrarian

    The WSJ is about 20 years late on this. I saw firsthand GM throwing all our new technology at the Chinese in the early 1900s. And concerns were painted over. It was the price of admission to the Chinese market.

  • avatar
    M 1

    Everything about dealing with China works this way. The steep certification and pre-shipment inspection requirements they put on imports is hilarious considering the low quality of the junk they send in the other direction. The bureaucratic red-tape is truly epic.
     
    We recently sent a bunch of excavators over. It took 90+ days for the buyer to simply receive approval to buy the equipment, then we had to produce a bewildering array of oddball documentation (service history? annual inspections? no such thing…) to a cadre of non-English-speaking inspectors whose job it is, apparently, to just go play with the equipment on our dime.
     
    We once passed on a lucrative contract to sell a bunch of street-cleaning equipment due to the insane semi-annual factory inspections (at our expense) plus the 6+ month application period and the need to send multiple “test” units to their “labs,” all of which would be required for certification.
     
    And neither the WTO nor our own State Department will lift a finger in support of American businesses.

    • 0 avatar

      M1: You have to thank Europe for that. What you describe is the ECE regimen. If a Chinese manufacturer wants to sell just a brake pad (ex factory cost $10) in Europe, he has to have his factory inspected (at his cost), in a quite invasive way, he has to have his part certified (at his cost, approx $3000 per part number for a brake pad), and is subject to surprise inspections (at his cost if they find something, and they always do). In retaliation, the Chinese implemented their own regimen, called CCC. It’s pretty much the European rules, but done in China, by Chinese labs.

      Next time a Chinese customer is interested in your excavators, street cleaners, backhoes or whatever, do it the same way Chinese do it if they lack the necessary certifications. Say:

      “So sorry. No have CCC. You want CCC, you do CCC for us, yes? You Chinese, easier for you.”

      European certification agencies do a huge amount of business in China, and Europe usually receives first class product. If the part doesn’t comply, it goes back. If the manufacturer balks, all his certifications to the ECC countries can be lost, and no more exports.

      If the US and by extension Canada would join ECC, US companies would enjoy the same leverage, and imported products would be much better. As long as the U.S. stick with the lax FMVSS standard (= self certification, and onus on importer instead of manufacturer) the game is one-sided: You have to observe CCC when exporting to China, whereas the Chinese can export anything to the U.S., if it breaks, the importer gets sued. I’d complain at Congress about that. The playing field between China and the ECC countries is much more level.

       

  • avatar
    robc123

    It looks like such a great market, because we assign western standards to doing business, but it is not so in China. They just want the cash and the tech and they will do it themselves.
    And if you were China Inc. why would you let anyone compete with you? This is why they are spending billions of yuan to buy into many differing sectors.  Which is funny if it wasn’t so sad, the Chinese are the real capitalists, they want a total monopoly.
    Who wouldn’t want a monopoly if you are in that position?
    No. I will not do business with them, or give them a single dollar, if I cannot sell in their country, why should they sell in ours?
     

  • avatar
    Robert Schwartz

    I would be concerned if I were not sure that BEVs will never be commercially competitive.

  • avatar

    I had read the article in the WSJ, and shook my head. I agree with the Contrarian that the WSJ has been sleeping. If you want to build a car, any car, in China, you need to enter a joint venture. 50/50 is fine, 51/49 not a requirement. And you can agree separately how the profits are divided. This is old and ancient hat.
    If you want to build just parts, you can just go ahead and start your own, 100% foreign owned company. No joint venture needed.

    The WSJ is confused. They should have read the “Catalogue of Guidance to Foreign Investment” first. The “Manufacturing of complete automobiles” by foreigners is “encouraged” with the proviso that “foreign investments shall not exceed 50%.” The manufacturing of “automobile engines”, “key spare parts”, the “production as well as research and development of automobile electronic devices” can be done 100% under foreign control. The rules expressly specify that the manufacture of “power cell (NiH and Li-con) and control systems” is limited to equity joint ventures, fuel cells don’t need a JV. These rules have been in place since 2007, a heartfelt “good morning” to those who just woke up to it and complain. And a big “boooh” to the Wall Street Journal that can’t do the most basic forms of research anymore.

  • avatar
    Trend-Shifter

    In China R&D = Receive & Duplicate


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