Once famed for its sea of bicycles, China has suddenly emerged as the world's largest producer and consumer of automobiles. Even more surprising, domestically owned Chinese companies are challenging the local joint ventures of leading global assemblers such as Volkswagen (VW) and General Motors (GM) for leadership in the Chinese market, and independent Chinese firms such as BYD are trying to accelerate the transition to electric vehicles.
Gregory T. Chin's China's Automotive Modernization is the fourth major English-language book to examine the interaction of Chinese auto policy and global markets. Eric Harwit's China's Automobile Industry (M.E. Sharpe, 1986) focused on high policy and relations with multinational corporations (MNCs), while Kelly Sims Gallagher's China Shifts Gears (MIT Press, 2006) indicted US multinationals for failing to transfer modern, clean engines to China, and Eric Thun's Changing Lanes in China (Cambridge University Press, 2006) emphasized regional variation, particularly the effectiveness of the local developmental state in Shanghai in persuading VW to invest in systematic upgrading.
Chin revisits the themes introduced by Harwit, arguing against Thun that the crucial factor driving the industry has been the central government's industrial policy, especially the 1994 automotive development policy. That policy, he claims, resulted from close oversight and co-ordination by key officials of the Chinese Communist Party (CCP), especially Zeng Peiyuan and Zou Jiahua of the State Planning Commission (later the National Development and Reform Commission or NDRC), with backing from Jiang Zemin and Zhu Rongji, both of whom had direct experience with the auto industry: “It is ironic that in the era of economic globalization, a source of organizational coherence and an enduring organizational advantage for China has been select Leninist institutional features of the CCP” (p. 235).
After an introductory section laying out the argument, part one contrasts the failed early alliances with weak foreign partners such as Peugeot and Jeep (American Motors) to the successful joint venture in Shanghai with European leader VW. This section adds a few details to Thun's account without significantly revising it. Part two on the 1990s constitutes the heart of the book. Chin provides an overview of the 1994 automotive industrial policy and details negotiations with GM over a US$1.5 billion joint venture in Shanghai. On the basis of interviews with both Chinese and foreign participants, he argues that China attained an unusually high degree of policy effectiveness in the 1990s. Part three provides an overview of the rise of home-grown firms after about 2000, and a more interesting examination of the surprisingly strong residual sense of vulnerability among Chinese officials.
Chin's contention that Chinese industrial policy accelerated technology transfer from MNCs is plausible but not completely convincing. Global auto firms reacted not only to Chinese policy, but also to a market that nearly tripled in size between 1990 and 1994. As sales leaped, local industrial capacities improved, and competition in the Chinese market intensified, foreign multinationals introduced more and more up-to-date technology, eventually invalidating Gallagher's pessimism. Separating the effects of policy from market conditions and analysing how policy shapes markets is difficult, and Chin does not address the task seriously enough. China's Automotive Industrialization fails to provide systematic quantitative evidence, and even the exact contents of the 1994 policy remain vague (the text, not provided in the volume, is available at http://china.findlaw.cn/fagui/jj/23/61225.html). The most important specific claim (p. 145) – that the Chinese government's efforts to concentrate the industry are gradually taking effect – is not clearly supported by the evidence, and China remains the least concentrated of the major auto markets. Nor does Chin note the downside of China's policy of protecting local ownership: foreign firms would have more incentive to export vehicles from China if they could keep all the profits for themselves; that is a major reason why exports of automobiles from India have surpassed those of China, even though China has similar quality and lower costs.
The biggest contribution of the book is the argument that the central government leadership has been far more cohesive and effective than usually acknowledged. Chin documents a high degree of expertise and sustained attention by a small group of top leaders (pp. 127–40). The interviews are useful in conveying the perspective and lofty ambitions of Chinese policymakers and the surprising degree of mistrust they still hold toward the global capitalist economy, though the book tends to take the statements of both Chinese and foreign interviewees at face value. It is telling that the author claims (p. 220) that VW broached the 50 per cent ownership limitation in Shanghai after China's entry into the World Trade Organization (WTO) in 2001, and that VW and other foreign assemblers have been exerting tremendous pressure to increase their stakes. No doubt foreign lobbying has alarmed Chinese officials trying to maintain a measure of local ownership and control, but as of mid-2010, the 50 per cent rule still stands (with the exception of a Honda plant aimed primarily at exports, another Chinese policy goal).
Despite the dizzying changes of recent years, the best single study of the Chinese auto industry remains Thun's Changing Lanes in China. Still, Chin's bold argument about the coherence and effectiveness of the central government makes a useful contribution to debates about Chinese economic policy.
