Why China's Auto Industry Doesn't Take the Road to Autonomy

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One of the Joint Venture Policy Makers Self-Defense: Realistic Choice

Chen Bin recalled that at that time he took the Xiali car as a sample and asked the leader of the FAW-Carbon Institute: If they concentrate all of their FAW strength, is it possible to develop a model like the Xiali? The answer is "impossible"

The rapid development of China's auto industry has attracted wide attention from both inside and outside the industry, and has also caused some criticisms and doubts about the path taken by the Chinese auto industry in the past: Since the implementation of the market-for-technical strategy for over 20 years, the independent brands have not made substantial breakthroughs. The dependence of foreign capital is still quite high.

On September 16, Chen Bin, deputy director of the Industry Department of the National Development and Reform Commission, as a government official who has participated in the formulation of important policies for a number of automotive industries, discussed his views at the 2006 China Automotive Industry Development International Forum.

Joint venture and cooperation are the only way

As one of the main participants in the two automobile policies before and after, Chen Bin believes that the opening of the auto industry is a historical and realistic choice.
Chen Bin's point of view responded to some people's suggestions that as early as more than two decades ago, why did the Chinese auto industry not rely mainly on independent development, but chose the joint venture and cooperation road?

Chen Bin introduced that in 1994, despite the fact that China’s car industry has already formed a “three major and three small” pattern, the “Auto Industry Industrial Policy” promulgated that year for the first time clearly stated that “the state encourages auto industry enterprises to use foreign capital to develop China’s "Auto Industry" (Chapter 27, Article 27).

Chen Bin said that during the drafting of the “Auto Industry Industrial Policy”, he also specially invited the leaders of large domestic companies’ research institutes. At that time, we were considering what kind of products could be developed if we depended on our domestic strength to develop independently.

Chen Bin recalled that at that time he took the Xiali car as a sample and asked the leader of the FAW-Carbon Institute: If they concentrate all of their FAW strength, is it possible to develop a model like the Xiali? The answer is "impossible."

Chen Bin asked again what the reason was and what the most fundamental question was. The other party replied that it was still on the power platform.

Chen Bin said that if the state assists or supports you in the introduction of a platform, can you develop a similar model like Xiali on this basis? The other person's answer is still impossible.

Chen Bin stressed in particular that this is not just FAW's answer, but also includes answers from the leaders of the two Dongfeng and other research institutions.

Chen Bin also added that at that time, for self-development, some of FAW's researchers were indeed at a loss. Because in the "7th Five-Year Plan" period, the transformation of FAW's light vehicles (little liberation models) relied entirely on self-development. It took seven years, but the developed model was unsuccessful and uncompetitive.

At that time, Qingling and Jiangling made the Japanese Isuzu light car by introducing engines, and each car could earn 20,000 yuan. The FAW light vehicles also share development costs, and companies have suffered losses. This has also caused their own development to be hit hard. Therefore, in the "Auto Industry Industrial Policy", it is very prudent to state that the state encourages the use of foreign capital to develop the Chinese auto industry.

50% to 50% is the choice of the company

Some time ago, there were more discussions about the ratio of Chinese and foreign shares in automobile joint ventures. Chen Bin said: After carefully formulating the model of using foreign capital to develop China's auto industry, in order not to get out of control, the Industrial Policy of the Automobile Industry stipulates restrictions:

First, "the proportion of Chinese-foreign equity joint ventures and cooperative enterprises that produce automobiles, motorcycles, and engine products should not be less than 50%" (Chapter 32, Chapter 6).

Chen Bin said that it is necessary to emphasize that the Chinese government has never appeared in all documents that the ratio of shares of both Chinese and foreign joint ventures must be 50% to 50%, nor has such regulations been issued. What we are proposing is that the Chinese share ratio must not be less than 50%.

Chen Bin believes that as a Sino-foreign equity joint venture, the ratio of 50% to 50% is the lowest in terms of management efficiency and operating efficiency, including the lowest efficiency of decision-making. But it is precisely that 50% to 50% are not Chinese companies.

For example, he stated that when formulating the “Auto Industry Industrial Policy”, the share ratio of the FAW and Dongfeng joint ventures was not 50% to 50%, and China was 60% to 70% (such as FAW-Volkswagen's Chinese stock ratio 60%). The 50% to 50% rule is not proposed by the government. It should be said that it is the choice of the company.

Second, “Foreign (or regional) companies cannot use the same type of vehicle products in China to establish more than two joint ventures or cooperative enterprises in China” (Chapter 29, Article 29).

Chen Bin believes that these regulations are correct now. For more than 20 years, the use of foreign capital has greatly improved the development level of China's auto industry. Through the joint efforts of both Chinese and foreign parties, the manufacturing of China's automotive products has reached an international level. The auto parts industry has greatly increased, not only participating in international competition on a large scale, but also laying the foundation for the independent development of domestic automobile manufacturers.

Chen Bin said that many problems are not determined by the industrial policies of a certain industry, but are determined by the entire country's innovation system and policy environment during this period of development.


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