Former Chinese Minster: "Joint Ventures Are Smoking Dope"

If you want to make cars in China, you need a joint venture partner. The Chinese joint venture partners have done well. 98 percent of last year’s sales of central government-owned Dongfeng came from joint ventures with Nissan, Honda, and Peugeot. Largest Chinese automaker SAIC derives 60 percent of its sales from made-in-China GM and Volkswagen cars.

That policy “is like opium. Once you’ve had it you will get addicted forever,” said former machinery and industry minister, He Guangyuan.

The influential ex-minister and former Standing Committee member gave an interview to the Chinese versions of Yahoo Auto , with an excerpt provided by Fang Yan of Reuters:

“From central authorities to local governments, everyone has been trying hard to bring in foreign investment. But so many years have passed and we don’t even has a one brand that can be competitive in the auto world. I feel red-faced.”

Reuters points out that it is extremely rare for current and even former senior government officials to publicly criticize an existing policy. Often, public utterances of former officials are meant to test the waters and could signal a shift. But a shift in which direction? Is the former minister suggesting to open the doors completely to foreign automakers, so that the cold wind of competition will wake up the Chinese industry from its Opium-induced slumber?

Dongfeng-Nissan President Kimiyasu Nakamura watches Yao Bin, Huang Kai Fong, and Ye Lei

China’s failure to create strong indigenous brands has been much discussed in China. China’s own brands lose market share to joint venture brands. A few years ago, the Chinese government started to strongly suggest to all joint ventures that it would be a great idea to launch an independent Chinese brand that is owned by the joint venture. The thinking was that this way, access to foreign technology would become easier.

It did not work out that way. Says Reuters:

“But instead of developing a car from scratch that would allow Chinese partners to claim half the patent rights and obtain know-how from their foreign partners, all the JVs simply took an existing foreign car model and only made a few changes to “create” a new JV car.”

From reading the interview, it sounds like the minister is going to a different direction. He praises Great Wall, one of the few Chinese car companies that start to make a name for themselves abroad.

“One should focus on support for the independent brands,” the former minster suggests.

As long as China’s state owned enterprises can indulge in being joint venture partners of the large multinationals, as long as the government fleet looks like the parking lot of Audi, the ex minister’s recommendations will fall on deaf ears.