Monday, April 27, 2009

Satisfaction and Disappointment: A Day in China

This blog post actually has very little to do with either business or government, but it has a lot to do with China and why I will most likely never make my “permanent” home here.

First the good news...

I learned long ago that to have more than one agenda item in a day while in China is to risk disappointment. The one item will inevitably take much longer than you expected, and may not even be accomplishable within a single day. I began this day with the modest goal of procuring round-trip train tickets to a city outside of Shanghai so that I can meet an auto industry veteran to whom I have been introduced by a mutual friend.

Despite being misdirected by the front desk personnel of my hotel, I was able to ask around and find the ticket office about a block away from where I had been directed. When I finally found the ticket office, I almost walked past it because I was expecting to see a room crammed with people and lines out the door. Much to my delight, the room was nearly empty! (Causing me to wonder if they had simply sold out of tickets.)

The girl who sold me my tickets was almost pleasant and even smiled a little. The transaction took less than a minute, and I walked away with the entire day ahead of me.

Back in my hotel room, I resumed working on a problem I had encountered the day before. Since arriving at this particular hotel from a less conveniently located one across town, I had been unable to use my VPN (virtual private network) to access the internet.

While the VPN is not absolutely necessary for run-of-the-mill web access (I can still check email and update my blog – for now), to me it is crucial for having a secure channel through which I can do things like pay bills, check my credit card and bank account balances, place securities trades, and, yes, access uncensored news.

Maybe I am a little too paranoid, but I am wary of the engineering prowess of Chinese hackers, and I would rather not have to deal with ID theft – especially while I’m away from home. I imagine the horror of surviving on handouts while waiting for a replacement ATM card to arrive.

After uninstalling and reinstalling my VPN software numerous times, reading all of the help files, trying to reconfigure my internet connection, pulling my hair out, rebooting about a thousand times, pulling more hair out, etc., I finally decided to just ask the hotel people about it. They seemed friendly enough.

When I asked, they were surprisingly forthcoming. “In preparation for the Olympics we had to change the equipment, and now VPNs cannot be used.”

“I see. But I stayed here last summer and used my VPN with no problems.”

“Yes, but we had to do this right before the Olympics in August.”

“Well, this creates a problem for me.”

“I am sorry and embarrassed (对不起,不好意思).”

Naturally, I don’t like it when other people make decisions on my behalf. When I clicked on news stories this morning that should have otherwise been immediately available to me, I was suddenly getting a number of timed out pages.

And it’s not like I cannot find the information elsewhere without a fairly thorough search, but the very idea that I cannot see what I want to see, when I want to see it, unnerves me. Access to information is the bedrock foundation of scholarship. My job as a social scientist is to read and assess all sides of an issue, but that’s awfully hard to do when someone is choking off part of my access.

Fine. So it has made things inconvenient for me. I can deal with that. But what disappoints me so much about this is the fact that the tools used to control information are a blunt instrument that not only prevent a relative minority of potential troublemakers from stirring up unrest, but they also thwart the actions of people who have every intention of making an honest and reasoned assessment.

And while this will not prevent me from conducting my research, it does prevent me from maintaining the broader world of context into which the knowledge I will gather should fit. And while I still want to maintain my independence as a scholar, it’s little things like this that just make it that much harder.

I took a quick walk down the street to another hotel and inquired whether they had internet in the rooms (they did), and whether I could use a VPN. As soon as I mentioned the VPN, their smiles disappeared and heads wagged from side to side.

On top of all this, there is a guy in China who spends his days beating the hell out of a piece of sheet metal with a ball-peen hammer, and, I swear, he has been dispatched to every hotel and apartment I have ever stayed in. He’s outside my window right now, hammering away as I write this.

Thursday, April 23, 2009

The Shanghai Auto Show as Research Venue

How useful was the Shanghai Auto Show as a venue for conducting research into business-government relations? In summary, not very.

Perhaps this was because my expectations were unrealistic, or perhaps it was because I’m still very new to this mode of research. Maybe a more experienced interviewer would have been able to squeeze more from the occasion.

Having attended other kinds of trade shows before, my expectation was that I would find all of the auto manufacturers in a giant room, each with a lot of personnel on hand to discuss their cars and their companies. I also expected that, due to the 100 RMB ticket price, the venue would not have been as crowded as it was. The picture below is of one of the ten major exhibition halls, each of them equally jam-packed.

Furthermore, I assumed that the setup would be designed to facilitate the conversations I was expecting to have with both Chinese and expat managers from the various auto companies. As I mentioned in yesterday’s post, the manufacturers’ venues were designed primarily with entertainment in mind and were so loud that any attempted conversations had to be shouted directly into someone’s ear.

Though I suppose it didn’t really matter because of the noise level, there were no expats to be found either. I had been hoping to meet some of the expats with the joint ventures who would presumably be more open to discussing the political hypotheses that have been driving my work, and who would presumably also be able to give me a personal introduction to some of their Chinese counterparts. Instead, this was a very Chinese affair, and the only foreigners in sight were attendees like me.

Despite the difficulty, I managed in two days to have five conversations in the manufacturers’ venues, three in English and two in Chinese. Oddly enough, after all my years of studying Chinese, I found the English conversations to go better. I think this was because people approached me first, speaking English. No one assumed I could speak Chinese, so I had to initiate those conversations myself. Sometimes I get the feeling many Chinese don’t actually want us to learn their language; they just want us to try.

In terms of substance, I did not gain a lot, but I was able to receive confirmation of some of my ideas, particularly on the extent of local government support for private (i.e. non-state-owned) auto companies. One person had no problem volunteering (again, in English) that his private manufacturing company would not exist if not for support given by his provincial government in terms of free land and water, tax breaks, and preferential loans.

However, when I questioned another English speaker on these same ideas, she was adamant that local governments had no influence over banks who are now overly concerned about risk. I am not sure whether she believed this to be true, or whether she was trying to avoid saying anything specific about her company’s relationship with the local government. If indeed this is the case in her region, therein lies a puzzle of why one provincial government can influence local banks and the other cannot.

My Chinese conversations were with a couple of guys at the Chery exhibit. I took advantage of a break in the noise to engage them about their electric vehicle development. Both of them seemed a little hesitant to speak with me after at first expressing surprise that I could speak Chinese. I’m not sure why that is. Don’t most foreigners here speak Chinese?

Anyway, I was able to glean from them that Chery was doing all of its electric vehicle development in-house and not licensing technology from anyone else. They are sourcing parts from all over, even outside China, but their hybrid and pure electric designs are their own. Also, many of their engineers are “hai gui” returnees from overseas. One of the lead engineers on their hybrid project had come from Ford. They already have a pure electric vehicle on the market but they were “bu qingchu” as to how many have been sold.

When I broached the subject of industry consolidation, they were quick to point out that Chery is one of the “四小”or “four small” manufacturers that have been designated by the government for regional expansion. When I pointed out that Jianghuai seemed to be the only other passenger car manufacturer in their region, they weren’t willing to discuss whether there would be a combination between Chery and Jianghuai.

On my second day, I decided to spend most of my time in the parts supplier exhibits. Here I enjoyed an entirely different reception. As I mentioned in yesterday’s post, the parts supplier exhibits were smaller, quieter and designed to facilitate business. I had maybe a dozen or so conversations with parts suppliers, all in Chinese, and even when I admitted up front that I was not a buyer, they all seemed happy to chat with me. Perhaps this is because many of the parts suppliers have fallen on such hard times recently that they liked to have even an appearance of interest in their products by a foreigner.

While these conversations were useful for practicing my spiel in Chinese, I didn’t gather a lot of substance. I did note that all of the parts suppliers I talked to were private businesses, and that there is a huge concentration of them in Zhejiang Province, particularly in Wenzhou, Taizhou, Ruian and Ningbo. Most of them offered me their business cards and asked me to contact them if I visit their cities during the course of my research.

When I decided to bail out of the Auto Show at the end of the second day, my back hurt from all the standing and I was a little depressed that things hadn’t turned out as I had planned. However, during the long subway ride back to the other side of Shanghai, I began to put it all into perspective. I am at the very beginning of what could be a very long period of research in China, and the odds of my finding the story during my first week were extremely low from the start.

Still, if a little good luck will get me home sooner, I’ll take it.

Shanghai Auto Show

Let me start off by noting that the coolest thing I saw at the show -- by far -- was the new Chevy Camaro. Despite all my travels and time spent abroad, I still bleed red, white and blue.

This being my first ever Auto Show, I was not certain what to expect; however, my experience there completely blew away my minimal expectations. After my second day, I realized that there are actually two different exhibitions going on at the same time: one for the assemblers, and one for the parts suppliers.

The assembler exhibits were all about flash and noise -- an effort to draw attention without any shame. I was amazed at how easy it was for the manufacturers to draw attention to even the homeliest of cars by standing pretty girls next to them.

This Chery QQ, however, was cute enough to pick up and put in your pocket. (I'm talking about the car, not the girl.)

The parts suppliers, on the other hand, were all about business. In some of the temporary exhibition spaces one could find sellers of every conceivable piece of a car from fuel pumps to transmissions to piston rings to interior consoles.

Whereas the assemblers only had a handful of people standing around to answer questions (compared to the throngs standing around their cars), the supplier booths were set up for making deals. The assembler areas were generally so loud that it was impossible to have a conversation. The parts areas were set up specifically for conversations to take place.

So that you don't think I was there only for business, I did manage to see this eye-catching act at the Hawtai Auto Group booth. (They were actually pretty decent musicians too!)

Now for the cars...

There were some interesting concept cars including this Hover H7 from Great Wall

And this one from Ford. I particularly liked the minimalist interior of the new Iosis Max.

Speaking of Ford, among America's Big 3, I was most impressed with Ford's exhibition space. While GM accentuated its very American big cars including Cadillacs and Buicks, Ford's focus (no pun intended) was more on smaller, fuel-efficient and alternative fueled vehicles. Ford's was also the most interactive of all the OEM exhibits with a lot of games of skill and trivia for car buffs.

As for Chrysler, well... I felt bad for them. Their exhibit lacked any imagination. It was a desert motif, which I thought quite appropriate for the times they are going through. They didn't bring any of their muscle cars, only the PT Cruiser (which was attracting some attention) and a bunch of warmed-over Jeep variations.

The Japanese exhibits were, except for the the pretty models they had hired, also pretty boring. Nothing but boring, dependable cars -- the kind of cars you would love to own, but that you wouldn't necessarily run out and brag about to your friends. Though Mazda did have an interesting concept car that looked like a grinning tiger.

The Chinese automakers, on the other hand, had a lot of interesting things to see. Geely, Chery, BYD, Great Wall, Changfeng, Brilliance, Lifan, Shanghai Auto, Changan, Dongfeng, First Auto, Beijing Auto and probably a few others I am forgetting all exhibited their own brands along with those of their JV partners. Here are some of the more interesting models I saw.

This concept from Changfeng

This gull-winged mini-car from Geely with solar cells embedded in the hood

Geely's Rolls Royce knockoff

And just in case you were wondering what "BYD" stands for, it's not Build your Dreams...

And here's a Mercedes-looking convertible from BYD. They're doing more than just plug-in hybrids.

Having seen all of the major Chinese branded offerings, it seems to me that, right now, there are essentially two kinds of Chinese-designed cars: those whose designs are copied from a foreign model, and those with, to put it gently "Chinese characteristics". The original designs, while creative, still lack a certain maturity that we can see in Japanese, American and European brands.

That isn't to say the Chinese brands are ugly, just that many of them do not appeal to my personal taste. While I found many of them interesting, I didn't find many that I would be proud to own and drive. I don't know whether this is a stage that Chinese designers will grow out of, or whether it is simply a difference between Western and Chinese sensibilities that will always exist.

For example, this Geely Tiger concept is hard to look at, but also hard to look away from. I'm not sure what to make of it.

Among the Chinese branded models that I would absolutely drive (based purely on appearance) are Shanghai Auto's Roewe 750 and Chery's Riich A6. Both have a sort of Jaguar/Lexus feel to them, yet they are unique enough not to be mistaken for something else.

And for the academics who have patiently scrolled through the cars to find out whether I gathered any research worthy of note, sorry to disappoint you. I'll cover that in another post.

Edit: Some may also be interested to see the new four-door Porsche Panamera that debuted at this show. It was impossible to get close enough for a good shot. Fortunately, the Chery exhibit across the way had a raised platform from which to use my zoom lens.

Monday, April 20, 2009

ChinaBizGov is Moving Forward

I hope my readers will forgive the recent dearth of posts. My final days in the US were consumed with getting ready for up to a year conducting research in China. I now write this post from my hotel room in Shanghai.

During the course of the next year or so, the purpose of ChinaBizGov will change somewhat. While I still hope to write some analytical articles, I will also blog a bit about my experiences conducting research here, the problems and difficulties I encounter, the learnings that I am able to share, and also my travel experiences in general.

My plan is to begin by visiting the Shanghai Auto Show this week where I look forward to finding all of China's automakers -- and a lot of foreign ones as well -- under one roof. I hope eventually to visit most of the major automakers (and some of the minor ones) in addition to some local and central government organizations that regulate and oversee the auto industry.

While I arrived here with some ideas and some lines of questioning, unlike a good political scientist, I did not bring with me a solid hypothesis. Other China scholars with whom I have consulted assure me that this is not unusual for one's first research trip to China. The important thing is to have an open mind and to listen. People will tell me what is important if I let them.

As comforting as that should sound, it is not my nature to embark on such a major undertaking without a detailed plan. Without question, I will have to draw upon the improvisational skills of the jazz musician I used to be (before I became a grad student again) if I am to emerge from China with a body of data sufficient to carry a dissertation.

While I have traveled to China numerous times before, and even lived here for a few years in the past, this is my first time to come to China as a visiting scholar. It will also be my first time to conduct interviews in Chinese, a language that continues to humble me on a daily basis.

I am thankful for those of you who have stuck with this blog so far, and I promise that its aim is still to deliver what its title promises: discussion about the relationship business and government in China. I am hopeful that the results of my research will be a better understanding of the role of China's government in economic development and industrial planning.

A few days before I left Los Angeles, a song by Hoobastank popped up on my MP3 player during a run. While you would be forgiven for not taking seriously the lyrics of any group who voluntarily refer to themselves as "Hoobastank", the words seemed appropriate for the task I was about to undertake.
I stand before, a road that will lead,
into the unknown. At least unknown to me.
I want to go, but I'm paralyzed with fear.
Fear of a choice, where the outcome isn't clear.

And I take, the first step of a million more.
And I'll make mistakes I've never made before.
But at least I'm moving forward, at least I'm moving forward.
At least I'm moving forward...

Thursday, April 16, 2009

Pragmatism Wins

Short post today as I am in the midst of a mad scramble to prepare myself for up to a year away from home...

I've never been a big fan of bloggers who frequently tout their ability to predict the future -- which is why I neither try to predict the future very often nor highlight the times that I do so successfully. I hope my patient readers will allow me this one brief exception.

Remember when the world was pulling its collective hair out over Tim Geithner's written comments about China's currency "manipulation" during his confirmation hearings? The general consensus in the press was to accept this as official Obama policy and predict doom for US-China relations.

Though international political economy is not one of the major topics I intended to cover with this blog, I couldn't hold my tongue. I felt people were not taking into account the role that domestic American politics was playing in Geithner's confirmation, and that his words were intended to get him confirmed, nothing more.

I summed up one of my posts, "Why Geithner's Words Don't Matter (Yet)" as follows:
Regardless of what may be said in confirmation hearings, and regardless of the inevitable angry words toward China that will emanate from the Pelosi-led Congress, Barack Obama and Tim Geithner will not countenance major economic sanctions toward China during a time when our cooperation is of utmost importance. To do so would lead to a trade war that would bring about an even longer and deeper world recession.
In another post on this topic, "Don't Worry About Geithner's Words on China's Currency", I said:
...we should take the words of as-yet-unconfirmed cabinet secretaries only as seriously as we take campaign rhetoric. Geithner, like President Obama during his campaign, wants a job that he does not yet have. Appearing to be tough on China is always part of a good campaign strategy in the United States.

Once people win elections or confirmations, they then become responsible for doing a good job. Often the practicality of leading a country negates the necessity of following-through on campaign rhetoric.
Now that Geithner is officially the country's Treasury Secretary, we find that, indeed, pragmatism wins (from the Wall Street Journal):
The Obama administration declined to label China a currency manipulator...

The decision...represents a sharp break from President Barack Obama's position while he campaigned for office.

It also contradicts Treasury Secretary Timothy Geithner's position in late January, when he said China was manipulating its currency, though the administration was careful not to repeat that language.

No one should be surprised by this.

Saturday, April 11, 2009

Finance vs Engineering

There's a great article in today's NYT by Keith Bradsher outlining some of China's plans for electric vehicle development (h/t @christinelu). It offers a few highlights of a recent conference held to discuss the government's plans.

Bradsher's first paragraph is very revealing in terms of how differently China and the US are approaching the issue of alternative energy vehicles
Senior Chinese officials outlined on Friday how they aimed to turn their country into the world’s largest producer of electric cars, including a focus on consumer choice rather than corporate subsidies.
A comparison of money outlay:

China also has a 10 billion yuan ($1.46 billion) program to help the industry with automotive innovation.

In the United States, the government is providing $25 billion to help cover Detroit’s research costs in the coming years.
China is supporting its 100+ auto assemblers (and thousands of parts suppliers) with $1.46 billion while the US is supporting the Big Three with $25 billion. Of course, the US also offers some tax deductions for alternative energy vehicles, as does China. Bradsher quotes a Vice Minister:

Zhang Shaochun, a vice minister of finance, said that the government wanted to let the market determine which electric vehicle models would become popular. So while the government is providing some research subsidies, the main step will be to provide very large subsidies for buyers of electric cars — already up to 60,000 yuan, ($8,800), for purchases by taxi fleets and local government agencies.

“The fiscal subsidy gives voting rights to the consumer,” he said.
It seems that, with all the anti-market sentiment brought on by the global financial crisis, China's leaders still see the value in letting the market make some decisions. This is not to say that they have become free-market champions overnight. (As long as China's economic planner, the NDRC exists, that would be difficult to prove.)

Furthermore, this NYT article only discusses the Central Government. There are a host of local governments in China that are far less eager to allow the market to decide whether their local auto manufacturers live or die, and they are going all out to support them with subsidies, local tax breaks and local government purchases.

So how is electric vehicle strategy being plotted differently at top levels in the US?

Let's look at some of the key players. The NYT article points out that China's Minister of Science and Technology is a former Audi engineer who used to work in Germany. (Incidentally, he's also not a Communist Party member. h/t @darnoc.) In fact, a look at China's Communist Party Politburo and the State Council reveals an overwhelming majority of scientists and engineers with a mere handful of lawyers and MBAs sprinkled among them.

Who in the US government is in charge of auto strategy? Steve Rattner, a former journalist and investment banker, is leading President Obama's Auto Task Force. While Mr. Rattner (and his boss) are undoubtedly smart individuals, it seems clear that the focus is very different from China's.

China's leaders are looking at auto strategy as an engineering question while the US government sees it as more of a finance question.

I don't want to over-generalize this observation. Certainly China must also deal with issues of finance, and the US industry must also continue its impressive record of innovative engineering. However, while China is focused on dominating the future of automobile manufacturing, the US is merely focused on how (or whether) to continue pouring money into a once-proud industry that is saddled with legacy costs and hostile unions.

Friday, April 10, 2009

China Auto Market Getting US Attention

When news about China makes it onto one of the American network news programs, I am always interested. Though I don't watch these programs, I know a lot of Americans still do, and, right or wrong, these stories about China do a lot to shape American attitudes toward China. Judging by some of the comments on the CBS news story accompanying the video below, it only makes some Americans angry.

American automakers, however, must be loving China right now.

GM's March sales in China were 25 percent greater than a year ago. Not only has the rising tide in China's auto market lifted all boats, but Chinese car buyers look to foreign brands for quality.

The quality hierarchy in China looks something like this:
  1. Imported foreign brands
  2. Domestically assembled foreign brands
  3. Chinese brands
However, I am curious as to how the foreign brands rank in the minds of Chinese consumers. I know that my Chinese friends in the US prefer Japanese brands to American brands, hands down. Despite my insistence that American quality is just as good as Japanese, and that JD Power's rankings prove it, my Chinese friends love their Japanese cars. And despite their personal antipathy for Japan itself, their perceptions of Japanese quality remain rock-solid.

International politics aside, according to this piece from CBS News, US brands are perceived as high quality. American automakers have adapted to the Chinese market by, among other things, focusing on making the backseat passenger comfortable -- not something that gets much attention at home.

VP for Chrysler in East Asia and founder of Synergistics, Ltd., Bill Russo, and GM China President Kevin Wale comment in this video. (h/t to Synergistics for the video link)

Wednesday, April 8, 2009

Something's Gotta Give

Yesterday's post discussed the fact that China's auto policy calls for an increase in market share of domestic brands from 25 percent to 40 percent in three years. The policy also calls for 10 percent annual growth in auto sales over the next three years.

Today, this Reuters story says that GM plans to double its sales in China within five years.

Some rough back-of-the envelope math tells us that, if both the 10 percent growth figure and the 15 percent increase in domestic brand market share figure are achieved, then three years hence, foreign automakers will collectively be selling approximately the same number of vehicles annually as they do now.

Combine this with GM's ambitious plans, and it would seem that someone should prepare to be disappointed -- either that or one or more of the other foreign automakers will
basically have to cut and run.

I'm betting it won't be Volkswagen.

Tuesday, April 7, 2009

Guess What's NOT in China's Auto Policy

A few weeks ago, China's State Council published a new comprehensive auto policy, the "Automobile Industry Adjustment and Stimulus Plan" (《汽车产业调整和振兴规划》). Because it's a little long (and because I did not really expect to see anything new) I took my time reading through the whole thing. Though I finally finished reading it over a week ago, only today did it occur to me that something is conspicuously missing from this policy.

But first, the briefest of sketches of what the policy does contain...

The policy's authors make the case that "adjustment" of this industry is necessary if China is to have a globally competitive auto industry, and they also make the case that this adjustment is made all the more necessary by the "international financial crisis". I am not certain if this is the real intention, but I would have worded it differently: the international financial crisis has provided China with a golden opportunity to leap into the upper echelon of industrial nations while the global auto giants suffer from a sharp decrease in demand.

Intentions aside, most of the provisions of this policy had already been announced by the time this comprehensive policy was released. Industry consolidation, plans to stimulate purchases through tax breaks and subsidies, a new focus on independent Chinese brands and development of alternative energy vehicles all figure prominently in the new policy. Many previous posts on this blog have already covered these topics ad nauseum.

Added to these major policies are additional policies to develop the financial and physical infrastructure necessary to support a strong auto industry. This includes development of auto financing alternatives, insurance, credit bureaus, auto loan securitization, a second-hand auto market, and construction of roads and parking facilities.

So what's missing from this policy?

A role for the foreign automakers.

There is no mention of a future role for the foreign players and the joint ventures in which they currently participate -- not even a mention of the desire for technology transfer or foreign investment.

The policy contains an explicit goal that, within three years, domestic brands will account for 40 percent of China's market. (Domestic brand market share was 25 percent in 2008.) This, of course, implies that foreign brands still dominate China's market, but the clear goal is to whittle away at that domination in the near future. (See chart below.)

If foreign players are under some kind of delusion that they will be long-term partners in the future growth of China's market, they may want to re-think their strategies. The words of China's policy were crafted through careful deliberation. The lack of a reference to the role of foreign automakers was not an oversight.


This chart (from WSJ) shows the top ten sellers of vehicles in China in 2008. Only two of these sellers are domestic: Chery and Geely.

Sunday, April 5, 2009

Local Govts Throw Full Weight Behind "New Energy" Auto Development

Encouraged by the attention paid to "new energy" vehicles in the Central Government's recent auto policy (Chinese), local governments have piled onto the new energy bandwagon with amazing alacrity.

Perhaps the projected output of 500,000 hybrid or purely electric autos and buses within three years is an indication of the Central Government's seriousness in becoming a global player in this market. Compare this figure with CSM Worldwide's projection of 1.1 million of such vehicles by Japan and Korea and only 267,000 by North American automakers. (Figures from Keith Bradsher's recent NYT article.)

An article this week in the 21st Century Business Herald highlights the preparation of a lot of local governments to take part in China's green car revolution. Many of these governments are forming local "new energy auto alliances" (新能源汽车联盟) that bring together local automakers, parts suppliers, universities and think tanks in an effort to plot strategy, recommend policy and ensure that local business benefits from such development.

Among the local regions that have already established formal alliances are Jilin Province, Chongqing City and Beijing City. In Jilin, First Auto Works (FAW) figures prominently as a center-piece of the local alliance, as does Changan in Chongqing. In Beijing, the central company is Beijing Foton (福田) which is controlled by Beijing Auto Group. Shenzhen, Hubei and Anhui are said to be planning similar alliances around BYD, Dongfeng and Chery, respectively.

The clear purpose here, as Bradsher's article reported, is for China to become a world leader in electric cars. To this end, China's Ministry of Industry and Information Technology also intends to convene a meeting in mid-April that will include several automakers (both foreign and domestic), State Grid and local auto industry authorities to begin planning the rollout of electric vehicle charging infrastructure (see article at Does anyone doubt that China is serious in its bid to become a major global player in this space?

While China should be praised for its proactive approach, not only toward cleaning up its environment, but in its savvy attempt to get ahead of the curve in electric vehicle technology, there are also drawbacks to its state-led approach.

Because local governments have such a stake in the success of their local firms, local protectionism has already become a key component of local auto policies. As I wrote in a previous post, the City of Shenzhen is going all out to ensure that BYD becomes a major player by buying loads of BYD's vehicles for use by city government and public transportation, and now by subsidizing the purchase of BYD vehicles by city residents. Another previous post pointed out that the City of Changchun is rebating inspection fees for vehicles purchased locally. As long as China's domestic manufacturers sell most of their cars in their home provinces, it will be difficult for any automaker to develop the scale needed to make electric vehicles at a sustainable profit.

Another problem is that local regions all over China are competing furiously to spend a lot of money on new vehicles whose technologies have basically been decided. No one is proposing anything like a "Back to the Future" car that runs on household garbage. As far as anyone is aware, all of the money is going toward variations on lithium-ion battery technology and hybrid or purely electric vehicles. A lot of duplication of effort is going on, and aside from employing a massive number of engineers, much of this spending is likely to have been wasted once these vehicles begin to hit the road in ernest.

Many people have been quick to praise the progressiveness of China's government in leading the charge to make itself into a global player for "new energy" vehicles -- myself included -- even to the point of criticizing other governments for not being progressive enough. However, I think the jury is still out as to which model will ultimately win: China's model of industrial planning, or the various degrees of market-led, government-assisted models employed in Japan, North America and Western Europe.

If I had to make a long-term bet, it would be on the unknown engineers at work in a garage somewhere in Silicon Valley who don't see the "Back to the Future" car as a mere dream of fiction.

Wednesday, April 1, 2009

Shenzhen Really Likes BYD

One of my favorite sites for inside info on Chinese cars and car companies, China Car Times, has an interesting story on Shenzhen's support for its local auto company BYD. While the Central Government has really jumped on the hybrid bandwagon with recent policies, most of the subsidies for hybrids and other "new energy" vehicles have been aimed at commercial or public purchases of such vehicles.

Shenzhen is going further by offering subsidies to consumers.
Subsidies of up to 50,000RMB are available to buyers of hybrid motors, and subsidies of up to 60,000rmb are available to buyers of pure electric vehicles...

From what we understand, Shenzhen’s own green car policy is giving out higher subsidies than the Central Governments subsidy plan. For example, if a Shenzhen resident planned to buy the 149,800rmb BYD F3 Dual Mode car in Shenzhen, then the city government would give the consumer a 60% subsidy, making the car nearly 90,000rmb, a fantastic saving. Currently, the USA offers a 20% subsidy for hybrid purchases.

BYD also revealed that their BYD F3DM is also being largely bought by government offices, and company fleet sales, although they plan to carry out a mass marketing exercise to promote the car to private buyers.
Did I read that correctly? A 60 percent subsidy?

In their efforts to ensure that BYD builds the scale necessary to survive for the long-term, does Shenzhen's government risk creating a quasi-private business that will become dependent on government handouts?

So Who Exactly is Buying a Piece of Delphi?

My previous post repeated the rumor that some Chinese entity was about to buy part of Delphi, GM's parts supplier spinoff. Since then, a few more details on the buyer, and what they are buying, have been revealed.

According to the Detroit Free Press (via, Delphi is selling its brakes and suspension businesses. Gasgoo also offers the interesting observation that, "by keeping Delphi alive, Beijing assists the US government in keeping GM alive".

So who is "Beijing" in this scenario?

When we non-Chinese refer to "Beijing", we typically mean the Central Government. That is not the case in this story. Gasgoo reports that the City Government of Beijing, among others, will be involved, and this report at Economic Observer sheds more light.

The entity buying these pieces of Delphi has been referred to in English as "Beijing West". Its Chinese name is 北京京西重工有限公司, or abbreviated as 京西, i.e. Beijing West. Apparently Beijing West was established for the specific purpose of purchasing these assets of Delphi with registered capital of 800 million RMB.

According to Economic Observer, Beijing West has three shareholders, one of which is the City Government of Beijing, represented by the Fangshan District State-owned Assets Managment Company (
北京房山国有资产经营有限责任公司) which holds a 25 percent stake.

The largest shareholder is Capital Iron & Steel (首钢, "Shougang") which will hold a 51 percent majority interest in the entity. Some readers may remember that the near-bankrupt Shougang was featured in the excellent Frontline documentary "China in the Red" several years back.

The third shareholder, which holds the remaining 24 percent, is a bit of a mystery to me. The Detroit Free Press says the third shareholder is "Tempo Group", a Chinese parts supplier. Economic Observer says it
is 宝安投资发展有限公司, or BaoAn Investment Development Company. A Google search of both Tempo and BaoAn has gotten me nowhere, so perhaps a reader out there may have some insight to offer on this mystery investor.

My only observation here is not particularly profound, but I continue to find it amazing that, when governments at all levels in China want something to happen, newly-registered companies seem to suddenly appear out of nowhere with all their paperwork in order.