China will need to retool its auto manufacturing strategy to achieve its goal of building strong global indigenous brands, experts say. Its joint venture policy of exchanging access for technology has largely backfired.
In a country where, literally, millions of consumers can hardly wait to buy a car, their first choice is not often a Chinese brand.
Nearly three decades after the Chinese government introduced a policy of requiring all foreign carmakers to establish local joint ventures, a world-class indigenous car industry has yet to emerge.
Billions of dollars in investments have poured into China and an estimated 30 million jobs have been created as a result of the strategy. In 2009, the country overtook the US as the world's largest market for new vehicles and posted sales of more than 18 million last year.
Yet Chinese car brands have little to show for all the activity in the sector.
In fact, they have lost ground to foreign competitors over the past two years, according to the China Association of Automobile Manufacturers. The market share for indigenous cars was 26.8 percent at the end of July, down from an all-time high of 30.9 percent in 2010.
"The joint ventures haven't delivered the success that the Chinese expected," said Ferdinand Dudenhöffer, a professor at Duisburg-Essen University and director of its Automotive Research Center. "The know-how hasn't flowed through. China's own product development still has a long way to go."
Foreign carmakers, he told DW, have been able "to partner in 50-50 joint ventures and gain market access while keeping their ideas, business secrets and engineering developments to themselves."
He Guangyuan, a former Chinese industry minister, didn't mince his words when he said at a recent industry forum that the auto manufacturing joint ventures were "like opium" that make Chinese companies addicted.
Daimler builds and sells in China
His criticism was directed at Chinese joint venture partners that have grown dependent on taking foreign cars, making some adjustments and selling them for a nice profit - instead of developing vehicles from scratch that would allow them to obtain know-how and share patent rights.
There have, however, been efforts to intensify the collaboration, notes Christoph Stürmer, an auto analyst with IHS Global Insight, pointing to the Denza joint venture between Germany's Daimler and BYD. "The two companies wanted to combine skills and build a vehicle from scratch but it's been slow going," he told DW.
Stürmer pointed to changes ahead in the Chinese auto industry as a result of the new five-year plan. "The government wants to establish three leading companies that can compete at a global level and about 10 full-range providers, and to have operations in all parts of the automotive value chain," he said.
To spur consolidation, the government plans to withdraw production permits to car manufacturers that make fewer than 1,000 passenger vehicles annually for two years back to back.
Auto expert Ferdinand Dudenhöffer expects China to be a global auto player some day
The Chinese automobile association predicts that about half of the country's 171 domestic players could go out of business over the next three years.
As a result of the consolidation and a concerted effort to acquire skills, experts expect a leaner and meaner Chinese auto industry to produce a winner or two on the global market.
"It is important for China as an export nation to be a key player in the auto manufacturing sector," Dudenhöffer said. "Cars are an important, valuable product to make and sell."
He pointed to a "shortcut" that some Chinese companies are already taking. Beijing's BAIC Motor Corp., for instance, recently hired Leonardo Fioravanti, who designed the Ferrari Daytona, as its chief design officer, while Great Wall Motor signed on former Mercedes-Benz designer Andreas Deufel as design director last year.