China's Automotive Market: What's Mine is Mine and What's Yours is Mine

Justin Berkowitz
by Justin Berkowitz

In 2002, Toyota sued Chinese automaker Geely for copying the Japanese automaker’s logo. In November 2003, a Chinese judge threw out the case. He claimed China’s trademark office had to reject Geely’s logo before Toyota could seek civil damages. The verdict provided yet more proof that China isn’t willing to lay down– or enforce– its copyright law. This lack of legal resolve is a clear and present danger to foreign automakers, and a stark warning of things to come.

Until roughly 30 years ago, the concept of private property was an anathema to The People’s Republic of China. When the country’s communist leaders decided to abandon Soviet-style central planning for a “mixed” (i.e. controlled) market economy, they eventually allowed individuals to own property and commercial enterprises. Shortly before joining the Word Trade Organization (WTO) in 2001, these rights expanded to include intellectual property (IP).

Since then, the number of IP cases in China has increased by some nine percent a year. A large number of these disputes involve China’s nascent automobile industry. And no wonder. China is now the world’s second largest new car market (having passed Japan in ’06). It’s expanding at about 17 to 25% a year. Tens of millions of Chinese are trading two-wheeled transportation for four.

Given the lack of copyright enforcement and the cost of developing a new car for sale– versus the cost-effectiveness of “borrowing” designs, manufacturing, parts, brand names and logos– it’s no surprise that the country’s native automakers are flooding the Chinese market with unabashed, automotive knock-offs.

For example, the [GM] Daewoo Spark and the [Chinese] Chery QQ are sheetmetal homonyms with, get this, interchangeable parts. (Rumor has it that Chery used the Spark with a Chery logo glued on to pass government crash tests.) Even when the running gear differs, Chinese manufacturers feel free to “riff” on trademarked designs. The Honqi HQD sedan looks like an ugly[ier] Rolls Royce Phantom– for about half the price.

Again, there’s very little incentive for a Chinese automaker to avoid building this sort of “homage.” According to China’s "Supreme Court Patent Trial Provisions," copyright thieves face a maximum statutory damage of 500,000 yuan (roughly $64k). And as Toyota discovered, “creative jurisprudence” makes attempting to legally right these wrongs a difficult bordering on pointless enterprise.

Further complicating matters, Chinese law stipulates that any foreign-owned automobile manufacture must share 50% of its Chinese division with a Chinese “partner.” The pattern of intertwined ownership works in the thieves’ favor. For example, GM held off suing the publicly listed Jiangling Motors for stealing one of The General’s designs. Jiangling Motors is partially owned by SAIC, GM’s Chinese partner. Nuff said?

While China’s foreign owned automakers wrestle with copycats and clones, trying to defend their technological investments and local brand equity, Chinese automakers are busy ramping up their export business. Last month, 500 Brilliance BS6s sedans left Dalian for Bremerhaven. This week, HSO Motors Europe announced it will distribute Brilliance vehicles in France and Switzerland.

Although Geely’s exports are currently restricted to Syria, Egypt and Latin America, the Chinese automaker plans to export 400k cars by 2010. The company’s recently announced deal with Chrysler to import a small Chinese-made car into the American market should account for a large amount of that business.

While many foreign manufacturers are willing to look the other way regarding IP infringement inside China, the advent of Chinese automotive exports threatens to bring the issue of IP rights to a head.

Later this year, Great Wall will export a small vehicle called the Peri to Italy. The machine looks an awful lot like Fiat's city car. With its Chinese ambitions and the obvious legal limitations within The People’s Republic, Fiat has been hesitant to take action against the Peri. But the arrival of a cheaper Panda clone on their home turf may well force their hand. It remains to be seen if a potential export backlash could dampen Chinese automaker’s “flattery.”

There is a darker side to these developments. The Chinese government’s willingness to turn a blind eye to cheap copies of foreign-designed automobiles may reflect their longer term strategy. At some point, when China’s joint venture automakers get up to speed, the government may give foreign automakers the boot, and allow their Chinese partners to assume full control. The student will become the master.

China's State Economic and Trade Commission’s tenth “Five-Year Development Plan for the Automotive Industry” predicts/dictates that "there will be two to three large automotive groups that have considerable strength in international competition. The domestic-market shares of products will exceed 70%, with some for export.”

How does that shake-out square with foreign interests? It doesn’t. Any foreign automaker that imagines itself as one of China’s Big Three better take a closer look at those clones. They may be China’s future.

Justin Berkowitz
Justin Berkowitz

Immensely bored law student. I've also got 3 dogs.

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  • Wsn Wsn on Mar 11, 2007

    Isn't the Mitsubishi logo a shameless copy of the MB 3-point star? Or is the Porsche prancing horse a duplicate of the Ferrari horse? Don't tell me that they register the logos on the exact same day.

  • Disgruntled Disgruntled on Mar 11, 2007

    An idea cannot be copyrighted, so any company can design a logo based on a horse. The point is: Geely's logo is not based on an idea, it's based on Toyota's logo. If the horse on the Porsche crest was against a yellow background with stripes above its head, then clearly that would be a copyright infringement on the Ferrari brand. If the horse was against a red background with four circles above its head, then it wouldn't be a problem.

  • Varezhka I have still yet to see a Malibu on the road that didn't have a rental sticker. So yeah, GM probably lost money on every one they sold but kept it to boost their CAFE numbers.I'm personally happy that I no longer have to dread being "upgraded" to a Maxima or a Malibu anymore. And thankfully Altima is also on its way out.
  • Tassos Under incompetent, affirmative action hire Mary Barra, GM has been shooting itself in the foot on a daily basis.Whether the Malibu cancellation has been one of these shootings is NOT obvious at all.GM should be run as a PROFITABLE BUSINESS and NOT as an outfit that satisfies everybody and his mother in law's pet preferences.IF the Malibu was UNPROFITABLE, it SHOULD be canceled.More generally, if its SEGMENT is Unprofitable, and HALF the makers cancel their midsize sedans, not only will it lead to the SURVIVAL OF THE FITTEST ones, but the survivors will obviously be more profitable if the LOSERS were kept being produced and the SMALL PIE of midsize sedans would yield slim pickings for every participant.SO NO, I APPROVE of the demise of the unprofitable Malibu, and hope Nissan does the same to the Altima, Hyundai with the SOnata, Mazda with the Mazda 6, and as many others as it takes to make the REMAINING players, like the Excellent, sporty Accord and the Bulletproof Reliable, cheap to maintain CAMRY, more profitable and affordable.
  • GregLocock Car companies can only really sell cars that people who are new car buyers will pay a profitable price for. As it turns out fewer and fewer new car buyers want sedans. Large sedans can be nice to drive, certainly, but the number of new car buyers (the only ones that matter in this discussion) are prepared to sacrifice steering and handling for more obvious things like passenger and cargo space, or even some attempt at off roading. We know US new car buyers don't really care about handling because they fell for FWD in large cars.
  • Slavuta Why is everybody sweating? Like sedans? - go buy one. Better - 2. Let CRV/RAV rust on the dealer lot. I have 3 sedans on the driveway. My neighbor - 2. Neighbors on each of our other side - 8 SUVs.
  • Theflyersfan With sedans, especially, I wonder how many of those sales are to rental fleets. With the exception of the Civic and Accord, there are still rows of sedans mixed in with the RAV4s at every airport rental lot. I doubt the breakdown in sales is publicly published, so who knows... GM isn't out of the sedan business - Cadillac exists and I can't believe I'm typing this but they are actually decent - and I think they are making a huge mistake, especially if there's an extended oil price hike (cough...Iran...cough) and people want smaller and hybrids. But if one is only tied to the quarterly shareholder reports and not trends and the big picture, bad decisions like this get made.