In 2009 China's industrial planners announced plans to have 500,000 green cars ("New Energy Vehicles" or "新能源汽车" -- a combination of electrics and hybrids) on Chinese roads by the end of 2011. That obviously didn't happen, so last year, that same target of 500,000 was pushed out to 2015.
So how did green car sales fare in 2012? Overall, hybrids plus electrics grew a respectable 52 percent.
So while sales grew pretty well in percentage terms, it is clear that overall numbers are still inconsequential when you consider that 19.3 million vehicles were sold in China last year.
How do these numbers compare to the US? Green car sales in the US grew 73 percent to over 440,000 in 2012. (Includes electrics, hybrids and plug-in hybrids.) So China's aim of 500,000 sales may still be a bit ambitious when you consider that not even the world's largest market for green cars has reached that number yet. Nevertheless, just as China has eclipsed the US in overall vehicle sales since 2009, China can probably be expected eventually to eclipse the US in green vehicle sales too.
One thing that we can surmise from these numbers is that China has clearly yet to become the global green car powerhouse it had aspired to become. The reason is simple, and it also explains why China's auto industry -- despite having been relaunched over 30 years ago -- has yet to produce a globally-competitive home-grown brand. (Investigation of this question consumes a major portion of my book, Designated Drivers: How China Plans to Dominate the Global Auto Industry.)
The state-dominated structure of Chinese industry does not provide the proper incentives for innovative leadership. China has private automakers, but they continue to be marginalized in terms of state support and access to funding. The big state-owned enterprises (SOEs) continue to receive every benefit that central and local governments can hand out, yet they are still led by politicians who have no incentive to take risks or invest for the long term.
The green technologies being used in Chinese EVs and hybrids are, for the most part, purchased, licensed or copied from foreign automakers. This is not a recipe for ownership of a global market.
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Green car sales data sources:
2010, 2011, 2012
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I think you mean the 'SOE/Foreign' domination of the Chinese industry does not provide the proper incentives for innovative leadership.
ReplyDeleteAlso, we should overlook the 120+ million green vehicles already on the road in China: electric bikes.
Thanks for your comments, Mr. Caudwell. You raise an important point. The easy availability of foreign technology through their foreign partners is also a disincentive to SOE innovation (easier to just use existing technology than to try to invent your own). It is also a prime illustration of the failure of China's strategy for this industry for the past three decades. Despite close partnerships with foreign automakers, Chinese SOE automakers have yet to begin exporting autos to North America -- something the Japanese and Koreans managed within 15 years of the launch of their respective auto industries.
DeleteI wonder why electric scooters haven't caught on in other countries to the same degree they have in China. China is arguably one of the worst places for any kind of electric vehicle because they are essentially switching the burning of gasoline for coal (which is used to generate more than 70% of China's electricity).
It's going to be exciting to watch what happens in the auto sector in China over the next decade. My own estimate is that China will attempt to more closely resemble Korea and Japan, which will put great pressure on foreign carmakers and their SOE partners. You can already sense the shift with the greater support for private domestic firms. But you're the expert, you tell me!
DeleteAlso, a smaller % of coal goes into China's electric generation mix every year. What other large country is investing as much in renewables as China? Or nuclear?
My view is somewhat different. China's system is the way it is for a reason. SOEs are at the center of China's industrial economy because they represent a source of power for the Communist Party. To relinquish that power would be to threaten Party rule.
DeleteThe only way that China would begin to shift away from a state-centric industrial economy and allow private firms to do what they do naturally would be if China undertook significant political reforms.
So a prediction about whether China will begin to de-emphasize state dominance in favor of a level playing field for the private sector is also a prediction about political liberalization: a prediction I am not willing to make -- not yet anyway. Let's give Xi Jinping a year or two to see where he plans to take China and whether he has the power to do so.
I will say this, if China does truly allow its private firms to flourish, they will provide more competition than many foreign firms are prepared to deal with. In that sense, China's central government is the best ally foreign firms have: they keep China's private sector from achieving its competitive potential.
G.E. Anderson,
ReplyDeleteHi, my problem with the idea that China's relinquishing of its SOEs would be tantamount to giving up political power is that if we accept the notion, then the last 20 years of China's economic reforms are difficult to understand. Look at the share of GDP, industrial assets, etc., that are state-owned. Monotonic fall since the mid-1990s, with a small blip from 2008-2010.
Or just look at the auto sector. If the regime thought that its rule was dependent upon retaining complete control over its SOEs, why would it invite foreign firms to co-dominate the sector, and then allow private entrants (Chery, BYD, others). Also, why wouldn't SOEs have the power to block private investment into new and promising areas?
Honestly, I can't square the evidence with the argument, perhaps I'm missing something.
These are great questions, and the short answer is that my book presents the evidence, but it took me nearly 300 pages to lay it out. :)
DeleteStill, I'll try to address some of your concerns here. First of all, yes, the private share of GDP has increased over the years. Most of this came under Zhu Rongji in the late '90s when over 40 million SOE jobs were lost, but were quickly absorbed by the private sector within a few years. The strategy for privatization since the mid-'90s was “抓大,仿效,” or “grasp the large, release the small,” and what that meant was they would privatize the small and less important firms, but keep the larger, more strategic firms.
Since that time the central government has maintained a sort of hierarchy of industry. At the top are what they call “pillar” industries of which the government intends to maintain control indefinitely. These include aerospace, telecoms, military, power generation and transmission, energy, steel and transportation, among others. Private investment has indeed been allowed to enter some of these sectors, but in none of these has private investment been allowed to become anything close to dominant. The playing field remains tilted against them.
Specific to your questions about the auto industry, you may want to read my book. (You would be surprised just how little money I make from book sales – less than $2 a copy – so I feel no guilt at all plugging my book. To me, it's more about getting the story out there.) The story you will see is that the private firms were supported initially by local governments, essentially under the radar, and only later presented the central government with faits accompli.
The central government, being unwilling to shut down a factory employing thousands of workers, would acquiesce, but has never fully supported the growth of these private firms by restricting their access to funding. The larger among the private firms have received token funding from banks, but nowhere near the level the SOEs receive, and part of the evidence of this is continued complaining by the CEOs of private firms about the lack of a level playing field and funding access. (And, by the way, Chery isn't privately owned. This is a common misconception. It is a local state-owned company.)
Also I wouldn't characterize the foreign automakers as “co-dominating” with SOEs. The foreigners are just along for the ride. They were seen as a way for the SOEs to get up to speed quickly so they could dominate. Fast forward 30 years and the SOEs still haven't figured out how to build world-class cars. It's far too easy to sit back and build foreign branded cars. The foreign automakers would, of course, prefer not to be sharing their IP with SOEs, but they have no choice. China's rules say they can only come in as partners with a Chinese company, and they can't own more than 50% of the JV.
As for SOEs having power to block private investment, they really have no say in what local governments do, and it is local governments who have had the most influence in whether an automaker gets established. BYD, Geely, and Great Wall, the case studies on each of these show how their establishment and continued success have been largely due to support from their local governments. Really, you would be surprised the lengths to which a local government would go to get an automaker set up in their regions. Whether state-owned or private, these are prestige projects that, if successful, can make a lot of money, and even if not successful, can still employ a lot of people.
Thanks again for your questions. I hope this helps somewhat.