Chinese Autos Outpace Michigan Auto Parts Makers
Made In China World
While China remains the largest automotive industry globally, they have the potential to become dominant with the influx of more advanced technology and energy efficient cars. Some issues surrounding the Chinese autos industry are certain grievances with other countries concerning WTO violations and NAFTA agreements, the need for more advanced technology and cleaner cars, and maintaining the position as the largest auto manufacture in the world. These topics of concern are most applicable to the major players in the Chinese auto industry consisting of the Chinese government, and car manufactures who are either, state owned entities (SOEs) or privately owned entities (POEs)
Historically, the Chinese Automobile market was developed under significant communist regimes, including the former Soviet Union and has been resistant to global economic change. Presently, the Chinese Automobile firms are a combination of state-owned and privately owned companies. However, the advent of globalization and technology transformed the conduct of business for the automobile industry. The ascension of China into the WTO in 2001 has facilitated increased participation from China, but not without concerns from other nations. The World Trade Organization (WTO) needs to strengthen and enforce policies in regards to the automobile industry in order to further enhance multilateral trade between China and the rest of the global auto industry trade. If the Chinese government can orchestrate the task of settling WTO & NAFTA issues while utilizing both SOE and POE resources they will be able to transform its auto industry into the dominant force it can potentially become.
China’s auto industry has made strides to become one of the leading nations within the auto market, having aggressive plans to become market leaders in auto parts and vehicles. Some of the most noteworthy issues regarding Chinese autos are how they have overtaken the U.S. as the world’s largest auto market, with emphasis on exporting to international markets. Chinese auto makers also realize there is room for improvement; they are looking into producing energy efficient cars with better technology, while expanding sales and production globally. There also have been claims that China is using unfair competitive advantages within the auto industry.
Just Autos reported According to the China Association of Automobile that by 2020 North America and Europe may drop to 35%Manufactures there was a 46% increase in cars sold 2009 compared to the U.S. that was down 21 %. It is estimated and China will have 65% of the market (2010). The Economic Times stated in an interview of Michael Dunne, president of Dunne & Company Ltd investments (a firm specializing in Asian car markets) by 2015 China will have produced 40 million cars and trucks and China’s demand will only take up 25-30 million (2003). This leaves approximately 10 -15 million available exports and the majority of these exports are done by private companies.
Despite China’s large market there is still a need to produce energy efficient cars and to obtain greater technology. China Business News reported Chinese auto manufacturers are bringing in Japanese engineers due to their project management experience, innovative strides in technology and knowledge of environmentally friendly cars. They hope this will help them be more competitive with other global brands. The Chinese prefer Japanese engineers because of East Asian connection fits better with their culture.
Some nations accuse China of using unfair competitive advantages that directly violate WTO agreements and NAFTA agreements. China does have U.S. restrictions on operations in China and being the largest market for auto sales in the world this gives China an unfair competitive advantage. Ironically the three large U.S. manufactures (GM, Ford, and Chrysler) are not speaking up since the majority of their plants are in China. GM actually sells more cars in China than in the U.S.
The major players in the Chinese auto industry that have the most interest in these issues consist of the Chinese government along with corporations such as; Shanghai Automotive Corporation (SAIC) and China First Automotive Works Group (FAW). These companies are state-owned enterprises (SOE’s) that are run and backed by the Chinese government and have partnerships with Western firms. SOE’s have the majority of Chin’s automotive market share and are known to look abroad for engineers (such as the Japanese) to share their expertise and technology with China. In addition, privately owned enterprises (POE’s) consisting of Geeley Holding Group and BYD also have concern with these issues. POE’s while having the smaller market share have been known to show more innovation threw harnessing domestic talent and being heavily weighted in exporting.
When the Chinese government acceded to the WTO in 2001 it boosted their auto industry, but there were also some concerns involving WTO’s ability to reinforce and direct Chinese obligations. In 2005, Noble, Ravenhill, and Doner reported China’s commitment to the WTO that is relevant to automobiles included; tariffs cuts, gradual elimination of quotas, phased in opening of various service sectors, elimination of performance requirements, and respect for patents, trademarks and other IP rights under TRIPS . Noble also stated that at times the Chinese government has dragged its feet or simply ignored some of their WTO commitments, this has helped spring board China to its number one spot, dethroning the U.S. as the top auto industry in 2009. In order to maintain this dominant position China is working on its 12th five year plan (2011-2015) for an auto imports promotion strategy through taxation and trade policies to help upgrade their auto industry.
World Trade Organization Disputes
Concerns with Chinas of violations WTO agreement have been expressed by U.S. due to their effect on the U.S. auto industry. The White House Bulletin reported Chinese illegal trade practices have cost over 400,000 in U.S. auto parts jobs. Reports state that the Chinese government put $27.5 billion of subsidies into auto manufacturing and plans to put another $10.9 billion (2012). In addition, the U.S. NAFTA agreements are being affected as well. Inside US-China Trade reported if the Chinese auto industry continues to have a regional structure run by local officials it will disrupt the automotive sector of NAFTA. Contrarily, China still has a concern with NAFTA‘s rule –of-origin for autos that requires a large pledge to use North American labor which China claims will affect their pricing strategy in North America. China’s development and ownership of advanced auto technology could split up NAFTA if the U.S. and Canada don’t come together on how to compete with China (2010).
In addition to the Chinese government interest surrounding trade agreements Chinese SOE corporations have concerns in improving their technology along with producing more energy efficient cars. SAIC Motor Corps is based in Shanghai, China; has branches in the U.S. Europe and throughout Asia. They research, develope, manufacture, and sell vehicles and auto parts including power train, chassis, and electronic parts. Just Auto reported that SAIC is working with Shanghai International Motor City (SIAC) on strategic development for new energy vehicle prototype as a top priority to participate in auto shows in China(2012).Shanghai Automotive Industry Corporation engages in the research and development, manufacture, and sale of passenger cars, commercial vehicles, and components. It offers buses, heavy duty trucks, tractors, motor cycles, excavators, and dozers. The company also offers parts, including power train, chassis, and electronic and electric parts. In addition, it involves in import and export logistic services; auto repair and maintenance; auto clubs and rental; production and non-production materials trading; financing and leasing business to cater traffic and transportation, construction machinery, and production equipment; retail of vehicles; and investment activities.
China FAW Group manufactures a product line that includes light, medium-duty, and heavy-duty trucks, along with cars, buses, and mini-vehicles. FAW has more than 25 subsidiaries, operating joint ventures with Volkswagen, Mazda, and Toyota. Just Auto reported that the FAW group main area of concentration is in the clean car segment, by focusing on hybrid cars (2010), for example the creation of Prius was a result of a JV between FAW and Toyota, which is one of the most popular hybrid cars.
Exporting has helped China become an automotive powerhouse and become the world’s largest auto market. POE’s such as Geely, and BYD have a very strong presence in the exporting market. Wheels Unplugged reported Geely Motors intends to begin selling mid range cars at end of 2012 for a very competitive price around 10,000 Euros. BYD( partially owned by Warren Buffett) plans to export its cross-over sedan model that was present at the Detroit Auto Show. BYD’s e6 model is all-electric car and will avoid the pitfalls of complying with American emission standards. However, Chery Automobile has also (considered a provincial SOE) set up a presence abroad in Italy, developing its own flagship car for Europe. (2010).
A Wall Street Journal article stated Greely Holding Group Corporation plans to increase sales of a Chinese produced sedan in the UK. Greeley launched the MG sedan to follow China’s state-owned SAIC Motor Corporation into the European Auto market. By 2014, Geeley and its distributor plan to sell in the UK to support its network of 60 dealers. Geeley Auto UK wants to repeat the success of South Korean companies such as Hyundia Motor and Kia Motors. Chinese Autos are being steered to the Southeast Asian, Middle East, and Russian markets.
The relationship between the Chinese government, SOEs, and POEs is pivotal to the success of the Chinese auto industry. The industry is still dominated by SOE’s that are run by the Chinese government. Chu reported that China’s government’s struggles to find a balance between the entrepreneurial spirits of the POEs, while maintaining bureaucratic control of the industry through the SOEs .