The Chinese Automotive Market: A Primer

Frank Williams
by Frank Williams
the chinese automotive market a primer

The Chinese automotive market has over a billion potential customers. Sales growth is well into the double digits. Labor rates are a fraction of those paid in western countries, without any union rules to slow down investment or add legacy costs. An ideal place for American investment? Depends on how you look at it. The Chinese market is controlled by a totalitarian government and regulated by an Automobile Industry Policy that’s more convoluted than a bowl of shahe fen noodles. As China nips at Germany’s heels to become the world’s third-largest auto producing country, let’s take a closer look at the sleeping dragon.

There are nearly 100 automobile manufacturers in China. Ninety-percent of the market belongs to eight state-owned companies. To meet soaring demand for new cars, these companies have partnered with automakers from around the world. These partnerships can appear strange; one Chinese company may have several partners which are competitors in the rest of the world. Here’s the list:

FAW: Toyota/VW/Mazda


Changan: Ford/Suzuki

Dongfeng: PSA Peugot Citroën/Honda/Nissan-Renault/Kia

Guangzhou AIC: Toyota/Honda

Beijing AIC: DCX/Hyundai

Nanjing AIC: Fiat

Brilliance: BMW

While Chinese law prohibits any foreign company (or combination of companies) from owning more than 50% of their Chinese partner, these joint ventures have proven lucrative for all the parties involved. The Chinese companies get access to the engineering and design expertise of world-class companies, while the partners gain a quick inroad to what is arguably the hottest new car market in the world.

As the market has grown, a number of independent (i.e. carmakers who aren’t affiliated with a foreign manufacturer) local companies have sprung up. They are usually either motorcycle manufacturers expanding into the auto market, new companies funded by capital from other industries (such as consumer electronics) or parts manufacturers that started assembling their parts into complete cars. The primary independent players are:








Of these, government–owned Chery is the best known– thanks to Malcolm Bricklin’s professed intention to import cars built by Chery under his Visionary Vehicles nameplate. While Bricklin keeps pushing back the introduction of his Chinese-built products due to quality, production and safety issues (not to mention a lack of investors), he insists he will revolutionize the American market with his line of low-cost, high value vehicles. Recently, DCX has also been negotiating with Chery to produce a subcompact economy car for Chrysler.

Chery’s other claim to fame isn’t so, well, cheery. They jump-started their production capability by buying the defunct VW factory in Westmoreland, PA and relocating it to China lock, stock, and tool dies. They then procured blueprints from SEAT for a car based on the Jetta and began producing a clone. (Jetta is the biggest selling car in China and the Chinese market generates almost 20% of VW’s pre-tax profits). As you can imagine, VW was furious. They eventually accepted a financial settlement in compensation.

To expand their operation further, Chery began hiring engineers from other companies including Daewoo. Two new models, the “Son of the Orient” and the “QQ” were suspiciously similar to Daewoo’s Magnus and Matiz (sold as the Chevrolet Spark). Chery introduced the QQ six months prior to the planned introduction of the Spark, priced $1500 lower than its automotive homonym.

GM accused Chery of “copying and unauthorized use of GM-Daewoo’s trade secrets.” Chery countered by claiming they had developed the QQ independently and with only “inspiration” from the Matiz. Since this “inspiration” consisted of styling so similar you couldn’t tell them apart from more than 10 feet away and interchangeable body panels, doors and other parts, GM filed suit.

After three years of litigation, GM and Chery finally settled out of court. While the details of the settlement haven’t been released, GM did win one concession: Chery can’t sell cars in the US under its own name due to the similarity between “Chery” and “Chevy.”

The problems with Chery underscore the sword of Damocles hanging over foreign manufacturers operating in the Chinese market. Any time you’re dealing with companies owned by a dictatorial government, you’re at the mercy of the whims of the political leadership. The Chinese government (controlled by the army) provides all of the information used for business planning: economic growth, per capita income, projected sales, etc. They create the rules for the protection of intellectual property. They control the courts that interpret the rules on the protection of intellectual property. They control everything within the supply chain, from labor to raw materials to retail distribution to taxes to traffic laws.

Like China’s so-called citizens, foreign auto companies are completely at the Chinese government’s mercy. If China’s rulers decide to nationalize all automotive production facilities, there’s nothing foreign automakers can do but leave. Meanwhile, they’re making hay while the sun shines, doing whatever they can to make sure their “partners” don’t pull the plug.

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  • Trentonl Trentonl on Nov 09, 2006

    CIA World Factbook says the following about China: labor force: 791 MM unemployment: 9% - 20% GDP per capita: $6,800 below poverty: over 150 MM PPP (kinda like per capita income): $5,600 So, to say "The Chinese automotive market has over a billion potential customers" is stretching it. Most people would be happy with some food... but most can't even afford that.

  • Wsn Wsn on Nov 09, 2006

    trentonl: But you don't need the full billion to be successful, right? GM sold about around 9.2 million cars worldwide last year. That's less than 1% of the Chinese population. Not to mention that the Chinese pupolation grows at more than 10M per year and GDP grows at 10% per year. And yeah, the early players (such as VW and Honda) are already at a huge profit, even if the Chinese government seize all their properties today.

  • CEastwood Seven mil nitrile gloves from Harbor Freight for oil changes and such and the thicker heavy duty gripper gloves from Wally World for most everything else . Hell we used to use no gloves for any of that and when we did it was usually the white cloth gloves bought by the dozen or the gray striped cuff ones for heavy duty use . Old man rant over , but I laugh when I see these types of gloves in a bargain bin at Home Cheapo for 15 bucks a pair !
  • Not Previous Used Car of the Day entries that spent decades in the weeds would still be a better purchase than this car. The sucker who takes on this depreciated machine will learn the hard way that a cheap German car is actually a very expensive way to drive around.
  • Bullnuke Well, production cuts may be due to transport-to-market issues. The MV Fremantle Highway is in a Rotterdam shipyard undergoing repairs from the last shipment of VW products (along with BMW and others) and to adequately fireproof it. The word in the shipping community is that insurance necessary for ships moving EVs is under serious review.
  • Frank Wait until the gov't subsidies end, you aint seen nothing yet. Ive been "on the floor" when they pulled them for fuel efficient vehicles back during/after the recession and the sales of those cars stopped dead in their tracks
  • Vulpine The issue is really stupidly simple; both names can be taken the wrong way by those who enjoy abusing language. Implying a certain piece of anatomy is a sign of juvenile idiocy which is what triggered the original name-change. The problem was not caused by the company but rather by those who continuously ridiculed the original name for the purpose of VERY low-brow humor.