The Historical Evolution Of The Chinese Automotive Industry

In this portion there will be an attempt to show an overview of the Chinese automotive industry, non merely for the interest of the historical presentation as an debut itself, but more significantly to be able to see how the industry has transformed from its early old ages and how the Chinese have been able to set to alterations.

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The history of the industry can be chiefly divided in three chief periods: the pre reform period, get downing from early 1920s until the beginning of the reforms, the period between the beginning of the reforms in 1978 until the WTO accession in 2001 and the station WTO accession, from 2001 until now.

It could be said that the history of the Chinese automotive industry starts in the early 1950s. However, there was some activity a few decennaries before, in the beginning of the old century, every bit early as the 1920s. With the debut of the car in the 1920s, large Chinese metropoliss such as Shanghai and Tianjin started basking the benefits of car transit. However, it could be stated that large graduated table automotive industry did non truly be in China before the mid 1950s, except for a few out-of-date workss that produced vehicles for authorities usage and some little graduated table workshops that assembled imported vehicles for authorities and military intents.

In the early 1950s the Chinese authorities realized the importance of the car industry for the state and decided to set up a national automotive industry and started puting big sums of money in order to make so, 6.6 billion Yuan.2 The first large car works, the First Automotive Works ( FAW ) was established in the Changchun state with the fiscal and proficient aid and support of the Soviet Union who wanted the works in that specific location in the northwest China, instead the East seashore which was Beijing ‘s want. The works ‘s building symbolized the beginning of the Chinese industry. Soon, about every state had its ain works, something that was really much helped by the regional decentalisation of the Great Leap frontward and the Cultural Revolution in the 1950s and 1960s severally. During this period, the Chinese automotive industry faced important development. The entire end product of the industry rose from merely 61 vehicles in 1955 to 22,500 vehicles in 1960.4

A few old ages subsequently, in the early 1960s, the cardinal authorities introduced the Second Automotive Corporation ( SAC ) , a vertically organized big works that would bring forth in-between sized military trucks in an stray cragged country, following the FAW Soviet type of works, fixing for a war that was ne’er meant to be between the Soviet Union and the USA.8

The reform period has been a narrative of impressive success and growing for China as a whole and accordingly the state ‘s automotive industry in specific. The period has been characterized by a rapid one-year mean growing of existent GDP of about 10.5 percent.10 Since 1978, when the reform period began, along with the economic system as a whole, there has been a really impressive growing and development in the automotive industry in the state. Ever since the industry ‘s orientation changed from the old centralised program to a more market oriented theoretical account, the development of the industry has been immense, turning the state into the biggest vehicle maker in the universe.

The gap of the market brought important alterations in the industry. In 1979 the figure of the imported rider autos in China was merely 667 autos. By 1980 the imported rider autos ‘ figure skyrocketed to 20,000, seting serious force per unit area on China ‘s stock of foreign exchange at the clip, something that earnestly worried the cardinal authorities. In 1981 the State Planning Commission issued impermanent restrictions on the production and import of autos but they had a really short term consequence on a market that was about to detonate.

What one should hold in head every bit far as the development of the industry is concerned, should be the fact that the beginning of the reforms and the gap up of the state, there was a crisp addition in touristry, which in cooperation with the changeless addition of the mean income in the state led to higher demand for taxis, apart from private cars.15 The growing in inward touristry has been as exceeding, as the growing of the remainder of the economic system. In 1978 the entire sum of tourers in the state was merely a bit more than 1.8 million people, whereas the figure in 2000 was more than 80 million.16 It is deserving to advert that local authoritiess have supported the joint ventures by buying large Numberss of autos for local cab companies. Shanghai, for illustration, is celebrated for the highly big fleet of the Shanghai Volkswagen Santana taxis.

However, by that clip the technological degree of the Chinese automotive industry lagged far behind the Western and Nipponese 1s ‘ . Thus, in order to acquire entree to the engineering that Chinese companies did non possess, the Chinese authorities gave the permission to Chinese houses to get down set uping joint ventures with foreign assembly programs and portion providers in order to run into the demand in the market, under the proviso that the foreign portion ‘s portion would non be more than 50 per centum, in order to protect the local companies.17 This was a really good chance for foreign companies as good, since they would hold the opportunity to acquire entree to the Chinese market, a market that at that point was rather little, due to the much lower income degrees, compared to other states, but a market that had immense potency, with more than one billion future potency clients. Even though many believe that the most of import ground the Western and Nipponese auto makers entered the Chinese market was inexpensive labour, most people from the industry would differ.

The chief ground for the immense involvement that companies from the developed states are interested in China is the potency of the state ‘s market. The continuously increasing income of the Chinese in-between category and the population of the state are things one should non disregard. The potency of the market was and still is so large that future gross revenues to a market of more than 1 billion people, was much more of import to their eyes. One should ne’er bury that the auto ownership denseness in China, even in our yearss is much lower than most states.

However, most of the early joint venture efforts did non make really good. Due to the rigorous joint venture bounds that the Chinese authorities had set most of the foreign companies invested chiefly pointing towards market entree than operational efficiency. In add-on, the deficiency of regulation of jurisprudence and more significantly the hapless rational rights protection Torahs made it more hard for the Westerners to be willing to portion engineering ; accordingly, most vehicles, even in our yearss, are chiefly older theoretical accounts that are kept in production for China.20.

However, apart from the unsuccessful efforts by some foreign companies to organize successful joint ventures in China there have been some narratives of great success. The most important illustration is the success of Volkswagen ( VW ) with the Shanghai Automotive Industry Corporation ( SAIC ) in Shanghai and late with the First Auto Works in Changchun.23

In 1994, the Chinese authorities after 3 old ages of impressive vehicle production growing ( 1994 production was about three times bigger than 1991 ) introduced the first specific policy document.27 The “ Automobile Industry Policy ” was announced in July 1994 and had 13 chapters and 61 policies. The consequence of the new policy was an even more intense involvement on behalf of foreign car assembly programs and portion providers to come in the market, particularly before the WTO accession in order to set up a strong place in the Chinese market before the WTO accession which was about to go on in a few old ages ‘ clip. The same twelvemonth, General Motors ( GM ) signed a contract with SAIC in Shanghai and became the 2nd foreign company to organize a joint venture with SAIC after Volkswagen. GM made an investing of 1.6 billion dollars to bring forth modern and more technologically advanced theoretical accounts, such as the Buick Regal and the Century theoretical accounts, and in add-on to assist SAIC construct a research and development ( RnD ) centre in Shanghai. In return, the Shanghai municipal governments helped GM build the works in less than two old ages gave the company the freedom it needed to turn fast, freedom much greater than the one VW had enjoyed a few old ages before.28 The finding of both sides to do a successful joint venture in Shanghai led to the first produced auto in mid December, after a record clip of constructing up a whole mill in merely 18 months.29 Confronting GM ‘s competition, VW invested in the development of new theoretical accounts and set force per unit area on the local authorities for the same discriminatory intervention GM was basking. In the state of Guangzhou, Honda replaced Peugeot at the local joint venture with Dongfeng when Peugeot decided to retreat from its first joint venture after the serious losingss it had been confronting.

The negotiations on the Chinese accession to the World Trade Organization took a really long clip. After about 15 old ages of dialogues, China entered the WTO in September of 2001. One of the chief grounds of this really long period was the deficiency of an advanced legal system in the state. Significantly of import was the deficiency of bankruptcy jurisprudence. The socialist heritage did non let for bankruptcies in the yesteryear, since the State would bail out any debatable and loss doing province companies ; that was the so called “ soft budget ” restraint.

During the old ages of post-WTO the growing of the industry has been even more impressive, until China made history in the first one-fourth of 2009 when its car gross revenues surpassed that of the U.S.A. to go the largest car market in the universe for the first clip.

foremost of all the gradual rise of the Chinese vehicle

The increased competition has dramatically increased the options the consumers have, apart from the quality and the lower monetary values that they have been basking recently. More specifically, in 2000 the Chinese consumers had to take from merely eight theoretical accounts in the rider auto market, whereas in 2003 there were 63 available ones53 and merely 3 old ages subsequently, in 2006 that was the figure of the debuts merely for the first half of the year.54l

makers, such as Geely and Chery. Chinese makers took advantage of the niches in the low terminal auto market, a market that the foreign joint ventures had been disregarding for some clip, and produced low-cost autos for the Chinese market. Having established a strong presence in the market now, many of them are bit by bit taking at the higher quality and priced theoretical accounts. Even though the autos with a foreign trade name name are still the bulk at that place has been a changeless lessening of the market portion that TCNs have been basking. TNCs are presently bring forthing two thirds55 of the vehicles in the market, a portion much lower than the about 90 per centum that they enjoyed in the beginning of the century when the state was admitted to the WTO.56 It seems that the WTO accession did non damage the local vehicle makers, on the contrary, many of them were forced to reorganise and go more competitory in order to last and with the aid from local authoritiess in some instances managed to better their place in the market and increase their market portions. This tendency is really likely to go on since the biggest Chinese makers have been believing of reassigning from auto production in their joint ventures with western makers to doing their ain theoretical accounts and trade names.

The Chinese companies

After September 2001 and the WTO accession one of the chief alterations that have occurred in the Chinese car industry is the challenged laterality of foreign autos in the market due to the consistent rise of the so called national autos. Since the beginning of the reforms, autos have been chiefly manufactured by transnational companies in China in cooperation with local makers ; the joint ventures. As can be seen from the tabular array 6, the beginning of this century signified a important addition in production capablenesss and growing of Chinese vehicle makers such as Geely and Chery.61

In add-on, the Chinese spouses in joint ventures with foreign companies, such as the FAW and the SAIC, are bit by bit get downing to reassign from fabricating foreign autos in their joint ventures towards making their ain trade names and vehicles, something that was evident in the recent Shanghai automotive show held in 20th to 28th of April 2009 in Shanghai. It is no surprise that rather every bit late as 2005, both largest Chinese vehicle makers, SAIC and FAW, announced their programs for national autos, even though it is non likely that they become competitory with their ain autos really soon.62 The chances that lie in front for these Chinese companies are immense, taken into consideration that it is estimated that by 2020, 40 per centum of the planetary gross revenues and more than half of entire production ( 55 per centum ) will be produced in Asia.63

In this portion of the paper, we will chiefly cover with the potency that the Chinese vehicle makers have to go planetary participants and export large sums of autos abroad, particularly the strictly domestic companies, such as Geely, Chery and Brilliance Automotive. These companies provide a really interesting instance to analyze, since they have evolved into serious participants in a market in which the competition is highly intense, with planetary large participants and less authorities support and protection than in the yesteryear, due to the WTO ordinances. In add-on, they have had to vie against joint ventures with planetary participants many times their size, more experient in the market and which have been basking the protection of local authoritiess, such as the Volkswagen and General Motors joint ventures in Shanghai mentioned in the first portion of this paper, every bit good as the publicity of the cardinal authorities as good.

Despite all the troubles that these companies have been confronting they have managed to germinate as top 10 car manufacturers64 in China and even more surprisingly export innovators. All three of them have already started exporting to Asiatic states, every bit good as other markets outside Asia, such as Eastern Europe and Middle East and have announced programs of presenting their theoretical accounts to the most competitory and demanding states of Europe and North America. Their success in those markets will be the most of import end for the following few old ages to come, since success in those markets will give them the characteristic they largely miss and what they are after by taking West: a strong trade name name. However, their attacks towards exports are non the same. Some have taken a more cautious and slow scheme and have been aiming the developing states ‘ markets go forthing Europe and North America for the hereafter while others have approached the mature markets of the developed universe in a more aggressive manner, either by presenting their theoretical accounts in the markets or by amalgamations and acquisitions of western companies.

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