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Why Beijing's new strategy to help Chinese automakers will fall short
Foreign automakers that want to expand in China these days are required to launch new brands with their Chinese joint-venture partners.
Earlier this year, Volkswagen AG received government permission to build a new assembly plant in south China only after it agreed to create a new brand for its joint venture with FAW Group Corp.
With this rule, Beijing hopes to force global automakers to contribute more technology to their joint ventures. This is supposed to help state-owned Chinese automakers learn how to design and engineer their own vehicles.
But it's not likely to work out that way. Contrary to the government's wishes, foreign automakers are better poised to gain from this requirement than their Chinese partners.
Nearly all vehicles currently sold by international brands in China were developed outside China, then modified to satisfy the tastes of Chinese consumers.
Though these vehicles are assembled in China, the Chinese joint-venture partners have had scant opportunity to learn how to develop those models.
Beijing's new policy is supposed to fix that problem. Now, foreign automakers must help joint venture partners develop their own models. But the tricky thing here is that their Chinese partners won't learn much.
It becomes clear why when you examine the plans of several joint ventures to launch new brands. A closer look reveals that
their "new" models will be based on old platforms borrowed from their global partners.
For example, Honda Motor Co.'s partnership with Guangzhou Automobile Group Co. will develop a model derived from its
previous-generation Fit. Likewise, Toyota Motor Corp. will lend its old Reiz platform to its joint venture with China FAW Group Corp.
These models, which will be sold under the joint ventures' own brands, will be priced mostly under 100,000 yuan ($15,150).
With proven quality and low prices, these joint-venture brands will win market share from domestic rivals. But they won't give the Chinese partners the up-to-date technology they need to compete against international automakers.
There's a second reason why Beijing's policy will fail. Chinese automakers won't learn much from their joint ventures because they simply lack the incentive to learn.
As long as they can comfortably enjoy the profits generated by the joint ventures, the local partners -- all state-owned to date -- feel no pressure to design and engineer their own vehicles.
By contrast, private Chinese automakers such as BYD, Geely and Great Wall have made far more progress in vehicle development.
Beijing hopes its new policy will teach China's state-owned automakers how to compete. This policy seems doomed to fail.
Earlier this year, Volkswagen AG received government permission to build a new assembly plant in south China only after it agreed to create a new brand for its joint venture with FAW Group Corp.
With this rule, Beijing hopes to force global automakers to contribute more technology to their joint ventures. This is supposed to help state-owned Chinese automakers learn how to design and engineer their own vehicles.
But it's not likely to work out that way. Contrary to the government's wishes, foreign automakers are better poised to gain from this requirement than their Chinese partners.
Nearly all vehicles currently sold by international brands in China were developed outside China, then modified to satisfy the tastes of Chinese consumers.
Though these vehicles are assembled in China, the Chinese joint-venture partners have had scant opportunity to learn how to develop those models.
Beijing's new policy is supposed to fix that problem. Now, foreign automakers must help joint venture partners develop their own models. But the tricky thing here is that their Chinese partners won't learn much.
It becomes clear why when you examine the plans of several joint ventures to launch new brands. A closer look reveals that
their "new" models will be based on old platforms borrowed from their global partners.
For example, Honda Motor Co.'s partnership with Guangzhou Automobile Group Co. will develop a model derived from its
previous-generation Fit. Likewise, Toyota Motor Corp. will lend its old Reiz platform to its joint venture with China FAW Group Corp.
These models, which will be sold under the joint ventures' own brands, will be priced mostly under 100,000 yuan ($15,150).
With proven quality and low prices, these joint-venture brands will win market share from domestic rivals. But they won't give the Chinese partners the up-to-date technology they need to compete against international automakers.
There's a second reason why Beijing's policy will fail. Chinese automakers won't learn much from their joint ventures because they simply lack the incentive to learn.
As long as they can comfortably enjoy the profits generated by the joint ventures, the local partners -- all state-owned to date -- feel no pressure to design and engineer their own vehicles.
By contrast, private Chinese automakers such as BYD, Geely and Great Wall have made far more progress in vehicle development.
Beijing hopes its new policy will teach China's state-owned automakers how to compete. This policy seems doomed to fail.