This book analyses the regional patterns of development of the automobile industry in China. It takes the form of a case study illustrating how performance varies between different regions in China, reflecting in each case the specific policy and institutional arrangements adopted by local governments for joint ventures (JV) with the global car-making giants. It is, therefore, both a study of business-organizational change and of the political economy of socialist transition, in which the role and modus operandi of local governments are analysed against the broader national policy context. In addition, the study has the added empirical depth of descriptions of the industrial history of the respective regions and discussion of the way in which these influence recent change.
Rather than focusing on the JV assembly plants, the study covers the “auto sector” for passenger cars as a whole, dealing, in particular, with their relationship to the supplier firms. Cargo trucks – the lynchpin of the conventional Chinese automotive industry – are excluded from the study, however. This makes good sense, as it is the sedan industry that represents one of the most vibrant, new “pillar” industries in China (alongside the electronics and IT industries). The sector is also significant as one earmarked for “import-substitution” FDI in which the Chinese government seeks technology transfer rather than capital. Given that production of auto parts and components tends to override assembly in importance, and given further that these backward-linkage manufacturing industries are globally subject to continuous technological upgrading (electronic, digital and modular revolutions), the Chinese government is keen on developing and integrating the supplier industries with the assembling process into a globally competitive automobile industry complex.
The book distinguishes between three major types of regional auto sector complexes. The first is Shanghai, which the author characterizes as a “local development state,” in that the municipality government takes charge of the sector as a whole and, being granted by the central government the status of an independent planning entity, it is free to reallocate fiscal resources in favour of the development of the supplier firms. This it does by deliberately raising prices of auto parts and components. The familiar German partner of Shanghai Volkswagen (SVW, a JV established as early as 1984–85), which is not only involved in car assembling, but has also increasingly partnered with the supplier firms, is seen basically as an option-taker. Prior to China's accession to WTO (in 2001) it was discouraged from importing state-of-the-art auto parts, with foreign exchange restrictions being cited as a reason, together with “local content requirements.”
I must add, however, that to my surprise, and indeed to the dismay of the German investor, SVW was from the very beginning requested (as I was told by a former Managing Director of the JV), to help develop and export auto parts, in order to partly comply with the national requirements of “balancing foreign exchange expenditure” (a rule normally strictly imposed on export-oriented FDI only). This certainly helped to promote Shanghai as the single most important national supplier base for the automobile industry (as is verified by the author in detail), and prepared the country to more or less hedge against global competition subsequent to WTO accession.
As clearly depicted in the book, by the end of the 1990s, the “auto sector” in Shanghai had already developed considerable scale of economies; so much so that when General Motors came in (1996–97) as a new and competitive partner with the same Shanghai Automobile Industry Corporation, SVW simply had to live with it, although initially, as I was also told by the said Chinese Managing Director, VW was “furious” and “threatened” to relocate altogether to Changchun (traditional bulwark of China's automobile industry) to team up with the familiar FAW (First Auto Works).
The other two regional models are, first, the “laissez-faire local states” of Beijing (home of Beijing Jeep – the first motor JV with American Motor Company established in 1983–84) and Guangzhou (with Peugeot as JV partner), and second, the “localities dominated by centrally controlled firms” exemplified by Changchun and Wuhan (home of Second Auto Works, also called Dongfeng). Both models are considered to be much less efficient than Shanghai's. For the former, competitive market-price pressures, amongst other factors, presumably make it difficult for supplier firms to accumulate capital and invest in technological upgrading (despite Beijing being the seat of central government). In the latter, fragmented, bureaucratic vertical control from the central ministries is seen to have prevented local governments from making use of the comparative advantages (over Shanghai) of having a solid historical foundation in automobile industry. I must add, however, that as reported in the Chinese press of the time, “excessive claims” by the French partner for its technological or “intellectual property rights” contributions were also regarded as an important factor in the continuous losses and eventual collapse of the Guangzhou-Peugeot JV.
Nevertheless, the WTO has brought about drastic winds of change in the auto industry throughout China. Besides the increased influx of parts and components, the book makes two interesting observations. One is that all major Japanese car-makers – Toyota, Nissan, and Honda (which replaced earlier Peugeot in Guangzhou as a partner) – have rapidly filled in (complete with their own supplier technologies) the market vacuum in South China, revolving around Guangzhou. Korea's Hyundai also emerges strongly in Beijing as a black horse. The other is that by also taking advantage of the rapidly deregulated market and their dominance as centrally sponsored enterprises, both FAW and Dongfeng are now poised to penetrate the unified national market for parts and components supplies, as well as auto assembling. The Wuhan-based Dongfeng-Nissan JV producing the majority of its passenger vehicles in Guangzhou is cited as a telling example.
Another commendable aspect of the book is that the three Chinese models of auto management are also evaluated from a global perspective by comparing them with the other East Asian (Japan, Korea and Taiwan) and Mexican VW models. The book is based on extensive literature research and interviews with JV managers and government agencies, as revealed in a two-page appendix on research methods. However, from the brief description of the interview questions, it seems difficult to decipher precisely how the three models could possibly be so sharply delineated and differentiated (hardly any traces of commonality are detected), given that all three have evolved from the same nationally centralized planning system. This notwithstanding, the book blends real scholarship with practical insights, and is highly readable. It should benefit anyone interested in China – government officials, politicians, businessmen and academics.
