Wednesday, January 4, 2012

End of the Road for Foreign Automakers in China?

Last week a story emerged that China's industrial planner, the National Development and Reform Commission (NDRC), has announced that it will stop supporting foreign investment in its auto industry. (News stories may be found here, here and here.)

This bit from a China Daily article explains a little about why these restrictions were being put in place:
China...has removed industries from the list of those it encourages foreign companies to invest in. No longer part of that group are automakers, large coal-to-chemical operations and manufacturers of polycrystalline silicon.

"The restrictions generally apply to industries that have excessively large capacities and that pollute the environment," said Zhang Xiaoji, senior researcher at State Council's development research center. (emphasis added)
My take on this story is that the NDRC actually has no real intention of restricting foreign investment in its auto industry. To understand why this is so, one needs only a limited understanding of the history of foreign involvement in China's auto sector, which I lay out in an op-ed in today's Asian Wall Street Journal.

In short, I make the claim that:
... the NDRC's announcement is more about improving Chinese leverage in negotiations with foreign automakers so Chinese automakers can more quickly overcome their innovation deficit.
For the rest of the op-ed at the WSJ site, click here.

And for all of the stories behind the main story of business-government relations in China's auto sector, my book, Designated Drivers: How China Plans to Dominate the Global Auto Industry, will be published by Wiley and Sons this year.

Coming to a bookstore, mailbox or e-reader near you in Spring 2012. Stay tuned!

I was just notified that my article was also picked up by WSJ's US op-ed page. It will run in Thursday's edition. (January 5)


  1. Thanks for the op-ed. I'm new to following the autos-in-China story, and your blog is an invaluable resource. I look forward to the book!

    I'm hoping you can clear up one bit of confusion I have - what is the definition of "expansion" here? Does it apply just to factories, or to dealerships as well?

  2. Daniel,

    Thanks for your kind words. You ask a good question about a distinction I hadn't really considered.

    I haven't seen anything clear one way or the other, but my assumption is that the official policy would only refer to new assembly joint ventures and new factory capacity for existing joint ventures.

    I don't think it would apply to dealerships because one of the solutions to China's overcapacity in auto manufacturing is to get cars to people who want to buy them, and preferably to cities that aren't already overcrowded with cars. There is still plenty of room for dealerships to expand into 3rd and 4th tier cities as incomes grow.

    Just my assumption though.


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