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3 Structure and Capability of Chinaâs Automotive Industry T he Chinese government is seeking to develop an automotive in dustry that is fully competitive with the worldâs leading original equipment manufacturers (OEMs)âan ambitious goal, with many implications for society and for the Chinese economy. This chapter identi- fies the challenges and barriers that must be overcome if the Chinese au- tomotive industry is to achieve this goal and the level of independence from foreign technology called for in the most recent five-year plan for the automotive industry (2001â2005). In doing so, the chapter draws on the experience of automotive companies throughout the world and looks at how the governments of a variety of countries have helped their auto- motive industries. EVOLUTION OF THE CHINESE AUTOMOTIVE INDUSTRY China began to develop a domestic motor vehicle industry in the 1950s. By pooling together investment and imported technology, prima- rily from the Soviet Union, the government was able to undertake estab- lishment of the First Auto Works (FAW) in Changchun in 1953. On July 15, 1956, the first Chinese-made vehicle was producedâa 4-ton truck. By 1958 many local governments were investing in the automotive industry, with the result that more than 200 factories began to produce motor vehicles. Yet only a small number of these factories survived and went on to become the backbone of todayâs automotive industry. Those that did were in Beijing, Nanjing, Shanghai, Shenyang, and Jinan. One product of these plants was the Red Flag sedan, the limousine used by 37
38 PERSONAL CARS AND CHINA high-ranking leaders in China. By 1960 the annual output of motor ve- hicles exceeded 22,000, but the industry then went into a decline, produc- ing less than 4,000 vehicles in 1961, and the original production scale was not resumed until 1963. In the late 1960s China began to build the Second Auto Works, which later became the Dongfeng Motor Corporation (DMC). It was located in a valley in northwestern Hubei Province, a mountainous region. The Sec- ond Auto Works reached its designed production capability in 1986 and began to produce 5-ton trucks. Other heavy-duty truck manufacturers, such as the Sichuan Auto Plant and the Shannxi Auto Plant, also appeared during this period. They too were built in mountainous areas, which im- peded production and further development. In 1971, after a decade of development, the total output of Chinaâs auto- motive industry exceeded 100,000 units. Growth remained slow, however, with the total annual output still under 150,000 seven years later. In the 1970s the total number of motor vehicle manufacturing facilities increased to over 50, but most of them were small and had low production. Earlier, in the 1960s, the Chinese government had attempted to imple- ment a highly centralized management system for the automotive indus- try, but for many years the industry developed in a scattered and disor- derly fashion. With economic reform in the 1980s, the highly centralized control of motor vehicle production under the planned economy was gradually replaced by a market-oriented approach. The product mix was adjusted, and the production of heavy-duty and light-duty vehicles1 was expanded to eliminate the shortage of these vehicles. China also stepped up its cooperation with automotive industries in other countries, import- ing technology and establishing joint ventures. In May 1983 Beijing Jeep Corporation, the first joint venture for manufacturing complete vehicles, was established. Later, Shanghai-Volkswagen, FAW-Volkswagen, Dongfeng-CitroÃ«n Company, and other joint ventures came into being. Adjustments also were made in the structure of the industry, and a group production and management system was gradually created. During the 1980s annual motor vehicle output increased rapidly, from slightly more than 200,000 in 1980 to almost 600,000 in 1989. During the 1990s Chinaâs automotive industry further adjusted its strategy, placing much higher priority on the development of the passen- ger car industry. Before the 1980s China did not allow private citizens to purchase motor vehicles for personal use and therefore did not develop passenger car production. In the mid-1980s, when the control on private pur- 1 According to the National Standard of the Peoples Republic of China GB 3730.1-88, a medium-duty truck weighs between 6 and 14 tons. Light-duty trucks are lighter, and heavy- duty trucks heavier.
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 39 chase was lifted, the number of personal-use automobiles began to grow. By 1985, 3,500 cars a year were being imported. Thus the development of car production to meet a growing demand became a government priority, and between 1990 and 2000 annual car production grew from less than 50,000 to over 600,000 at plants in Shanghai, Beijing, Tianjin, Guangzhou, Chongqing, and Guizhou, including those of the FAW Group and DMC. After lagging behind that of the industrialized world for many years, Chinaâs automotive industry, and especially the personal-use automobile sector, is advancing rapidly. Over the past decade the personal automo- bile fleet has been growing by over 20 percent a year.2 Five factors sug- gest that future growth will continue at a high rate: (1) continued im- provements in the Chinese economy; (2) the governmentâs decision to make personal cars a pillar industry; (3) population growth and urbaniza- tion; (4) Chinaâs entry into the World Trade Organization (WTO); and (5) improvement and expansion of the transport infrastructure. Currently, domestic production accounts for more than 95 percent of the total motor vehicle market share. Domestically produced trucks basi- cally meet market demand in terms of variety and quantity. The previous high disparity between supply and demand in the passenger car sector has been largely relieved. China also has become the worldâs leading country in motorcycle manufacturing, boasting several internationally competitive motorcycle enterprises. Motorcycle output and product vari- ety meet current domestic market needs. The quality of vehicles produced in China is improving rapidly be- cause of the tremendous growth in the production of vehicles by the joint venture companies, which provide their proprietary product design and modern factories. Chinese performance regulations are forcing the use of more advanced technologies. The competition introduced by Chinaâs en- try into the WTO is expected to accelerate this technological and quality improvement. CHINAâS AUTOMOTIVE INDUSTRY TODAY By the end of 1999 China had 2,391 automotive enterprises: 118 OEMs, 546 motor vehicle remanufacturers, 136 motorcycle assemblers, 51 engine makers, and 1,540 motor vehicle/motorcycle parts and components com- panies (China State Economic and Trade Commission, 2001). Chinaâs au- tomotive sector employed a total of 1.8 million people, of whom 169,000 were engineers and technicians. The automotive sectorâs total assets were 2 Based on a presentation by Prof. Guo Konghui, Jilin University, Changchun, China, in Washington, D.C., May 2001.
40 PERSONAL CARS AND CHINA TABLE 3-1 Motor Vehicle Production, China, 2000 Production Vehicle Type Volume (unit) Percent Growth Rate Vehicle total 2,069,069 13.07 Truck 764,005 1.03 Heavy 81,950 74.37 Medium 153,761 â16.82 Light 390,543 0.99 Mini 137,751 0.07 Bus 700,387 37.77 Large 7,953 3.06 Medium 35,938 22.13 Light 248,178 34.87 Mini 408,318 42.16 Car 604,677 6.95 2.5â4.0 liters 46,459 48.44 1.6â2.5 liters 367,554 2.97 1.0â1.6 liters 62,988 52.19 Less than 1 liter 127,676 â5.93 SOURCE: CAC-China Auto Consulting and CCPIT (2002). RMB508.7 billion ($61.3 billion), and its total output value was RMB341.1 billion ($41.1 billion). In 2000 total vehicle sales reached RMB391.1 billion ($47.1 billion), up by 80 percent from 1995, with profits of RMB17.4 billion ($2.1 billion), up by 107 percent from 1995. And in 2000 China produced 2.07 million motor vehicles (a 43 percent increase from 1995), 605,000 of which were passen- ger cars (an 86 percent increase over 1995), and 11.53 million motorcycles, or 44 percent of the worldâs total production (an increase of 45 percent over 1995). Overall, the automotive sector had a total export value of RMB20.7 billion ($2.5 billion) and an import value of RMB29.8 billion ($3.6 billion)âsee Table 3-1 for a summary of 2000 production. Finally, the annual production capacity for complete vehicles in China is about 2.6 million, including 1 million trucks, 700,000 buses, and 900,000 cars. The leading automotive manufacturing enterprises in China are listed in Appendix 3-A to this chapter. THE CURRENT STATE OF VEHICLE TECHNOLOGY Heavy-duty trucks. The Steyr series trucks, produced by imported tech- nology, has reached the level of technology used by most international
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 41 OEMs of the 1980s. Todayâs Benz series trucks meet the 1990s technology standards. Vehicles produced by the Dongfeng Motor Corporation are meeting the international technology level of the late 1980s.3 Medium-size trucks. The medium-size trucks being developed and pro- duced by domestic automobile manufacturing enterprises are relatively advanced in technology. Light-duty trucks. Imported models of light-duty trucks include the Isuzu series and Iveco series, which have reached the international tech- nology level of the late 1980s. The cabs of independently developed trucks, such as the Small Dongfeng and New Yuejin series, now meet the interna- tional level of the early 1990s. Some models developed in the 1960s and 1970s are still in production after modest improvements. Minibuses and trucks. Most of these products were introduced from abroad in the mid-1980s, and there is a big gap in their technology com- pared with the advanced level reached internationally. Large and medium-size buses. Imported series such as Kassbohrer, Volvo, Benz, and Neoplan are at the international technology level of the early 1990s. Light-duty buses. The Iveco and Golden Cup series (Toyota Hiace), which have a large market share, have reached the international technol- ogy level of the mid-1980s. The newly imported Delica-Transit and Traffic series are at the level of the late 1980s. Passenger cars. The Audi A6, Passat B5, and Bola models meet current international technology standards, as do the newly imported Buick Cen- tury and Honda Accord models. Fukang, New Jetta, and Audi are at the international level of the early 1990s. Alto and Cherokee are at the inter- national level of the mid-1980s. The Santana series belongs to the prod- ucts of an earlier period, but it has undergone major modifications. Agricultural vehicles. Agricultural vehicles, which are low-speed and powered by diesel engines, carry both goods and passengers in rural ar- eas.4 The vehicles use very simple technology. In the late 1990s the annual production of such vehicles in China was about 3 million, most of which were three-wheelers. Prices vary from RMB4,100 ($490) to RMB28,700 ($3,460) per vehicle. Four-wheelers are capable of maximum speeds of about 50 kilometers per hour (kph) and payloads of up to about 1.5 tons, and three-wheelers have maximum speeds of up to 40 kph and payloads of up to 0.5 ton. Agricultural vehicles receive some tax advantages over conventional vehicles, but they are banned from most large cities because of their low speed and high pollution levels. Moreover, three-wheelers 3 This section is based on CAC (2001). 4 This section is based on Asian Strategic Investments Corporation (2000).
42 PERSONAL CARS AND CHINA may be prone to overturning. At present China has about 15 million agri- cultural vehicles, produced by over 200 manufacturers. Virtually all com- panies are indigenous, using indigenous technology. STRATEGIES PURSUED BY OTHER COUNTRIES TO DEVELOP THEIR AUTOMOTIVE INDUSTRIES The U.S. and European automotive industries developed over many years, well before the global marketplace became a reality. In Europe many companies received direct government support from time to time, and most countries protected domestic producers at critical times. Geo- graphically isolated, the U.S. industry developed with very little foreign competition until it was mature and very strong financially. In the meantime, several research organizations were being estab- lished in Europe and the United Statesâfor example, Ricardo (Shoreham by the Sea, Sussex, England), AVL (Graz, Austria), Southwest Research Institute (San Antonio, Texas, United States)âand today they provide both the smaller and the financially weaker companies, as well as the large, mature OEMs, with the help they need to develop technology. The annual budget of each of these research organizations is about $300 mil- lion (RMB2.5 billion). Another firm, entirely dedicated to automotive tech- nology, is FEV of Aachen, Germany, with a laboratory in Detroit. Its sales in 2000 were $1.6 million (RMB13.2 million). Many universities have de- veloped strong programs that have produced high-quality engineers and scientists in large numbers each year, effectively feeding the research pro- grams both in industry and at independent laboratories. Since World War II, Brazil, Korea, and Japan also have established large, internationally competitive automotive industries. Brazil has the twelfth largest automotive industry in the world. It produces 1.7 million vehicles a year, largely for the domestic market. Fiat, Volkswagen (VW), Ford, Gen- eral Motors (GM), and Toyota each have freestanding, wholly owned sub- sidiaries in Brazil, which account for the production of the vast majority of vehicles. Each of these subsidiaries maintain some research and develop- ment (R&D) capability; in fact, the capability of VWâs subsidiary is consid- ered second only to that of the facility in Europe. Little intellectual property is transferred, but these enterprises provide jobs for Brazilians and contrib- ute significantly to the countryâs gross domestic product (GDP). Although few strong university or independent automotive research centers exist in Brazil, some vehicles have been designed and developed largely by Brazil- ian researchers and engineers, including earlier versions of the Volkswagens now being manufactured and sold in China. Japan and Korea, by contrast, have developed their own indigenous automotive industriesâJapan beginning in the 1950s and Korea in the
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 43 1970s. In the early days in both countries, vehicles were built by large industrial companies with far-reaching industrial expertise and extensive resources. The Japanese and Korean governments provided R&D support, but the principal benefit they offered was protection from foreign suppli- ers. And to this day, Korean and Japanese companies account for over 90 percent of domestic vehicle sales in their respective countries. In both countries the early companies were export-oriented and able to establish a significant international presence within about 10 years of launching domestic models. Furthermore, both of these countries provided signifi- cant protection against foreign imports while their industries were devel- oping, an option that is not available to China after its entry into the WTO. The Japanese industry also benefited greatly from having small, high- quality cars available when the market for small cars suddenly expanded. By contrast, there is no obvious technological capability in China from which Chinese industry might gain a major advantage that does not exist in foreign OEMs. In Japan, one important exception to the industrial development just described is the Honda Motor Company. In the early years of the nationâs automotive industry (1965), the Japanese Ministry of International Trade and Industry (MITI) decided that Japan should support only two or three automotive companies, and it developed its industrial policy accordingly (Johnson, 1982). Not one of the selected companies, Honda focused first on building its motorcycle products. Then, building on its expertise with motorcycle engines and technology, the company expanded in the 1960s to small cars. The companyâs first exports, in the late 1960s, were of poor quality and did not sell well. The next car it exported to the United States was the Honda Civic, with the innovative low-emitting, stratified charge CVCC (compound vortext-controlled combustion) engine. The timing was fortuitous because the United States was just implementing its first set of stringent emissions standards. Although other companies claimed that the standards were unreasonable and even unattainable, Honda disagreed and introduced its car to great acclaim. For several years, until the next series of more stringent nitrogen oxide (NOx) standards were introduced, its CVCC engine was one of the few engines to meet U.S. standards with- out needing a catalytic converter. (About 15 percent of production in 1975 consisted of cars without converters, which included some produced by manufacturers other than Honda.) The Japanese industry also benefited greatly from an unusual market circumstance in the 1970s and early 1980s. With the introduction of the oil embargo by members of the Organization of Petroleum Exporting Coun- tries (OPEC), the demand for small cars with high fuel economy increased in the U.S. market. The Japanese imports were well suited to fulfill this demand, and U.S. domestic manufacturers offered essentially no compe-
44 PERSONAL CARS AND CHINA tition for several years. During this time the Japanese companies captured a significant market share, one that they have continued to build on over the years. Although several international companies have announced in- tentions to produce vehicles in China for export, because China does not now make or export a unique vehicle, an indigenous Chinese industry is unlikely to enjoy similar export expansion. THE FUTURE DEVELOPMENT OF CHINAâS AUTOMOTIVE INDUSTRY Two important features of the 2001â2005 plan for the automotive in- dustry are: 1. Two or three large automobile groups will be retained, with sales, distribution, and after-sales service systems commensurate with interna- tional standards. Their output will supply more than 70 percent of the domestic vehicle market and will include some exports. 2. The government will nurture the formation of 5â10 large supplier groups, which will compete in the international market. The largest three companies should enjoy a 70 percent share of the domestic market. These guidelines represent a significant restructuring of the industry, from one that is heavily dependent on technology from outside sourcesâ primarily from the worldâs leading OEMs that are partners in joint ven- turesâto one that is closer to being self-standing and capable of develop- ing and introducing the latest technologies into Chinese products. In contrast with the once centralized control of the automotive industry, the more independent motorcycle and farm equipment industries have de- veloped a fully stand-alone, indigenous capability that is able to compete successfully in the world marketplace. In considering the implications of different industry structures, the committee identified various organizational forms and components that can be expected to be part of the total automotive industrial complex. Although it is not possible to predict accurately the size or complexity of any one of these elements, the overall structure of the industry will likely mirror the structure of the world industry. In a real sense, competition from successful overseas OEMs will encourage, perhaps even force, the Chinese industry to adopt many of their practices if it is to compete effec- tively in world markets. The elements of this future structure can be ex- pected to include some or all of the following forms: 1. stand-alone indigenous OEMs 2. Chinese enterprises in partnership with a single distinct joint venture
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 45 3. Chinese enterprises, each in partnership with several joint ventures, including some overlap of joint venture members among the various Chi- nese enterprises, as is common today 4. motorcycle or farm equipment companies capable of developing a small car 5. wholly owned subsidiaries of foreign companies with the capabil- ity to manufacture new vehicles 6. small or modest-size domestic entrepreneurial companies able to provide engineering support to all of the various enterprises in China. Although the first of the alternativesâstand-alone indigenous enter- prisesâhas been assigned a definite role in the five-year plan, it is un- likely that current stand-alone companies will be able to achieve the level of capability needed without drastic restructuring. State-owned enter- prises exist throughout China, but the committee was presented with no information that suggested that these have the organizational structure, the personnel, or the level of technological sophistication necessary to cre- ate world-class enterprises in the short term. Furthermore, state-owned enterprises are required to adhere to practices that increase their costs and make them less competitive, such as providing housing, schools, and facilities for their employees. Dramatic changes will have to be imple- mented in these enterprises if they are to provide a long-term basis for a truly competitive indigenous industry. Several small entrepreneurial and locally owned enterprises appear to be emerging in the Chinese auto market. Although their cost structure seems to be competitive with the larger companies, the long-term viabil- ity of these enterprises remains unclear. Anyone considering alternatives 2 and 3, both of which involve some form of a joint venture, must recognize that the technology contained in the world-class cars and trucks currently manufactured in China has been provided largely by joint ventures without the transfer of the intellectual prop- erty that would allow Chinese members of the joint ventures to develop their own capabilities. Intellectual property includes not only patents, but also a range of proprietary information such as trade secrets, special manufacturing techniques, design processes, and systems engineering. This type of knowledge is essential to the development of a competitive indigenous industry in China. In addition, as noted earlier, several of the vehicles produced by the joint ventures do not possess the latest technolo- gies. It seems very unlikely that a competitive stand-alone capability can be achieved in the near term through the existing joint ventures without a drastic restructuring of these enterprises to ensure that the Chinese part- ner will gain the experience and know-how to design and develop world- class vehicles. This observation has been reported and reiterated in con-
46 PERSONAL CARS AND CHINA versations with representatives of the major Chinese automobile compa- nies and observed in the assembly plants. The second form in the listâChinese enterprises, each with a single joint ventureâwould have the benefit of fostering the kind of close work- ing relationship between the joint venture partners that could allow the transfer of knowledge to and the building of a technical capability in the Chinese partner. With a single partner, intellectual property could be more easily protected, and the partnership could provide the structure that would allow the Chinese to achieve the long-term objective of developing an indigenous industry capable of competing in the world marketplace. Of course, if the joint venture partner is to be comfortable with creating that capability in its Chinese partner, it will want assurance that its Chi- nese partner will not become a competitor. The arrangement between the Chinese partner and the joint venture partner would, then, probably have to be a long-term one. But such a relationship is likely to be attractive to potential joint venture partners only if they foresee large markets for the products being developed by the enterprise or significant investment in the enterprise by the Chinese partners. The third formâChinese enterprises, each with several joint venture partners, some of which overlap with other enterprisesâis the most com- mon one at present, but it introduces a further complication. As noted earlier, the Chinese members of these enterprises have not benefited from the transfer of intellectual property from the foreign OEMs. Past business arrangements apparently did not require such transfers, and it is unlikely that joint venture partners would be willing to agree to such a structure in the future. Because each of the overseas members of the joint venture would want assurance that any proprietary information transferred to the joint venture would be kept confidential from other overseas members, who are likely to be competitors in other markets, the Chinese partner is likely to find it very difficult to receive and use this information to de- velop its own intellectual capabilities. Furthermore, this arrangement tends to reduce the incentive for the overseas partners to transfer the most sensitive proprietary information, which is precisely what the Chinese partners need to move toward a fully competitive independent industry that can design and develop a world-class vehicle. The fourth formâthe entry of either the motorcycle or the farm equip- ment manufacturers into the small car marketârepresents an interesting alternative for China. Many of these companies are freestanding, success- ful developers of products for their markets. Although there has been some indication that the motorcycle industry is interested in developing a small car, it appears that this vehicle is smaller than that contemplated for the âChina carâ described in the five-year plan. Because of limited infor- mation, the committee was able to conclude only that enterprises in these
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 47 two industries represent a resource that could form an important part of the new automotive industry. With Chinaâs entry into the WTO, the fifth formâwholly owned for- eign subsidiaries in Chinaâis likely to appear for the first time in modern history. Even some companies that are presently joint venture partners of Chinese firms may find that this is a more advantageous way to partici- pate in the growing Chinese market. Already some major overseas com- ponent manufacturersâfor example, Robert Bosch, Corning, and Engelhardâhave wholly owned subsidiaries in China. Similarly, some overseas OEMs may choose to withdraw from joint ventures with a mul- titude of partners as a way of protecting their intellectual property. Such OEMs are more likely to participate in the market through wholly owned subsidiaries that will have access to the technologies of their overseas owners and can offer continuing competition to Chinese companies. The sixth form of the industrial complex is the small or modest-size indigenous entrepreneurial company able to provide engineering support to all of the various Chinese enterprises. These independent engineering companies can provide important consulting and development capabili- ties. Large OEMs are increasingly turning to such resources in the West as they attempt to reduce their in-house costs. There is no reason why West- ern research companies would not be interested in supporting Chinese OEMs as well. As mentioned earlier, several of these companies have sig- nificant capabilities. The principal difficulties that must be confronted by the Chinese com- panies attempting to develop the capabilities to design and develop an indigenous automobile can be summarized as follows: â¢ The Chinese industry must compete with strong, mature indus- tries in Japan, Korea, Europe, and the United States. â¢ As a member of the WTO, China will find it difficult to protect its domestic industry as it enters the period when high growth in the domes- tic car market is about to accelerate. â¢ State-owned enterprises are not currently competitive with the major foreign OEMs. â¢ The enterprise structure that China has put in place through joint ventures with foreign OEMs, which brings several international compa- nies together under one roof with domestic partners, will likely continue to discourage the transfer of knowledge to the Chinese because of fear that the knowledge will fall into the hands of competitors. The critical issue the Chinese industry must face is how to develop a relationship with world-class OEMs that will encourage the transfer of the knowledge needed to build a long-term, independent, indigenous in-
48 PERSONAL CARS AND CHINA dustry. As described earlier, companies could pursue several possible ar- rangements. Although all of these present possibilities for enhancing the viability of the Chinese automotive industry, it must be recognized that Chinaâs entry into the WTO is a strong countervailing force. With duties on imported vehicles expected to fall from 129 percent to 14 percent, some of the worldâs OEMs may view the opportunities of importing vehicles into China as more attractive than building the capabilities to design and develop vehicles in China. Inasmuch as the latter alternative will do little toward accomplishing the stated objective of building a freestanding, in- digenous industry, the government will have to seriously consider its vari- ous alternatives. The dilemma that China faces can be summed up in one question: Will China be able to revolutionize the structure of its automotive indus- try and encourage that industry to achieve a level of competitiveness at a time when much of the near-term market for small cars is affected by imports, thereby denying the local industry an important fraction of the revenue needed to develop the independent capability it is seeking? The movement toward rapid motorization does offer an incentive for restruc- turing the automotive industry, but the problems raised by the implica- tions of WTO membership must be addressed. This overall challenge is embodied in a stated goal of the Chinaâs five-year plan for the automotive industry: to develop an economy car with a 1.3-liter engine that could be sold in China for about RMB80,000 ($9,600). Today in the United States at least two economy cars with a manufacturerâs suggested retail price of less than $9,000 are currently for sale.5 Both have 1.5-liter engines and 10- year/100,000-mile warranties and can be readily purchased for much less than the suggested retail price. With Chinaâs import tariffs for cars sched- uled to be capped at 25 percent by 2005, such vehicles may offer serious competition in the economy vehicle segment of the Chinese market. BUILDING AN R&D CAPABILITY The creation of a strong domestic R&D capability is an essential ele- ment in the development of a successful indigenous automotive industry. This capability will enable both the transfer of intellectual property from international companies and the creation of intellectual property that can be the basis for a strong, export-oriented indigenous automotive industry. Because many activities fall within the category of research and de- velopment, different companies define their R&D activities in different 5 They are the Kia Rio and Hyundai Accent, both manufactured in South Korea.
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 49 ways, making it difficult to develop a clear picture of their efforts. For example, in the automotive industry the engineering involved in creating the product, the development of advanced technology, and the research on new concepts and procedures are commonly included under the ru- bric of research and development. If China hopes to develop an indig- enous industry that can independently develop and sell vehicles that con- tain leading technologies in world markets, it must have these capabilities. It appears from visits to various companies in China, presentations by experts, and visits to laboratories that such capabilities do not cur- rently exist in China. China does possess several world-class manufactur- ing facilities and some scattered but excellent R&D capacity, both in and out of the industry, but its broad engineering and development capabili- ties relevant to the automotive sector do not appear to be comparable to those of the world-class OEMs. Currently, some 3,000 engineers are em- ployed in research and development within the Chinese state-owned com- panies and the joint ventures involving foreign OEMs, but these engi- neers are not involved in the design and development of current vehicles. The reasons for these engineersâ lack of involvement are not totally clear, but they appear to include some of the following. Before the period of reform and the opening of the economy, R&D activities were limited through central planning. In the absence of compe- tition, there was no incentive to either develop new vehicles or improve existing designs, and there was little opportunity for Chinese engineers to gain practical R&D experience. Today, in the post reform period, world- class cars are being produced in China, but the designs and the technol- ogy contained in them are imported by the joint ventures, and Chinese engineers are still given little opportunity to contribute to their designs. In its efforts to establish itself as a viable indigenous undertaking, the Chinese automotive industry must find a way to utilize this pool of talent successfully. Any restructuring within the industry must recognize this opportunity at the outset and make provision for it. A reliable estimate of the resources needed to develop the required R&D capabilities would be helpful, but there is no generally agreed-on analytical procedure for accomplishing such a task. However, one mea- sure of the annual investment needed may be the current annual invest- ments in research and development of the worldâs competitive automo- tive companies. For example, according to documents filed by General Motors Corporation with the U.S. Securities and Exchange Commission, âin 2000, GM spent $6.6 billion [RMB55 billion] for research, manufactur- ing engineering, product engineering and development activities related primarily to the development of new products or services, or improve- ment of existing products or services, including activities related to emis- sion controls, improved fuel economy, and the safety of persons using
50 PERSONAL CARS AND CHINA GM products.â6 In 2000, GM spent 4.1 percent of its revenue of $161 bil- lion (RMB1,300 billion) on research and development. The comparable figure for Ford was 4.8 percent. Product engineering and development consume the vast majority of R&D funds. (One of the Chinese enterprises informed the committee that it is currently investing 2 percent of sales in research and development, and that it is seeking to raise that figure to 2.5 percent. A second enterprise claimed to be aiming for an R&D expendi- ture of 3 percent of sales.) To compete with world-class manufacturers, Chinaâs automotive industry must be prepared to invest significant funds on a recurring basis. A critical mass of research and development may be required to effectively restructure the automotive industry. And during the time in which capability is being created, the funding will need to be significantly larger. Two other critical issues also must be carefully considered. The first is the content of any planned R&D program. A wide spectrum of technolo- gies is described in Chapter 4, some of short-term importance and some with long-term possibilities. Careful balance of the technologies to be ex- plored in the R&D portfolio is essential. The industry cannot achieve the desired independence by concentrating exclusively on long-term or ex- clusively on short-term technologies. Thanks to the sizeable investments made by members of the automo- tive industry worldwide, technology is continuing to evolve and new products are appearing almost daily. To remain competitive with these developments, the Chinese industry must possess the capability to con- tribute to current technological developments and to utilize them. Ac- quiring such a capability will require significant investments in both fa- cilities and personnel. At the same time, the long-term technological opportunities cannot be ignored. China has undertaken steps to support some of the long-term technological research through its newly an- nounced RMB880 million (over $100 million), five-year program for the support of research on fuel cells, hybrid vehicles, and electric vehicles. Although this investment is large by Chinese standards, it is only a frac- tion of what is being spent by overseas manufacturers to find solutions to the same technical problems. The challenge is to maintain a proper bal- ance among the various technological opportunities. A second critical issue, but one hard to quantify, is the availability in China of engineers trained in the various aspects of automotive engineer- ing. Many new engineers with capabilities in the relevant fields are needed 6 Form 10-K, as filed with the U.S. Securities and Exchange Commission, for the fiscal year ending December 31, 2000.
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 51 to join those already employed in industry. In addition, Chinese universi- ties will probably have to increase their output of automotive engineersâ only 178 masters degrees and 36 doctorates were awarded in automotive engineering in 2000âand some of the engineers receiving training abroad in this field should be encouraged to return.7 But skills in product design and development are not acquired solely in school; industrial experience is essential. Engineers should be sent to as many international conferences, meetings, and short courses as possible to stay up to date on technological progress. The joint ventures should be encouraged to provide these op- portunities, and state-owned enterprises and private companies with labo- ratories should participate in the training of students. Overall, the Chinese government and the countryâs automotive in- dustry will each have important roles in restructuring the industry to achieve its objectives. CONCLUSION The Chinese automotive industry is faced with a variety of structural problems. The state-owned industries must be made more efficient and all responsibilities not directly essential to automobile production should be removed and placed with other agencies. The joint ventures, while gen- erally profitable, have been structured in ways that do not result in the transfer of technology to the enterprises. Re-creating a relationship with one or more joint venture partners in order to encourage the transfer of knowledge will be a challenge that may require restructuring some agree- ments among the joint venture partners. Independent entrepreneurial companies that can provide assistance to the industry are beginning to emerge as a source of technical expertise. The engineering consulting firms that have successfully supported the U.S. and European Union members of the industry represent a resource that can be utilized by the Chinese enterprises as well. Achieving the necessary restructuring while at the same time facing the likely competition from foreign imports (and possi- bly some freestanding subsidiaries of overseas OEMs) presents an enor- mous challenge to both the industry and the government. One thing is certain: creating a successful indigenous industry will require a long-term commitment of funding, substantial facilities, and the availability of highly trained engineers and scientists. A careful assessment of the re- sources likely to be available over time should be carried out before a particular path is chosen for the members of the industry. 7 Information provided by Prof. Guo Konghui.
52 PERSONAL CARS AND CHINA APPENDIX 3-A: THE MAJOR AUTOMOTIVE ENTERPRISES IN CHINA FAW Group Corporation FAW Group, the first large-scale motor vehicle production base in China, is now one of Chinaâs top ten industrial enterprises. Its headquar- ters is in Changchun, and its production capacity is 700,000 vehicles a year. In 2000 the total motor vehicle output of the FAW Group was 423,000, the highest in Chinaâs automotive industry. The FAW Group also produces mini- and light-duty buses and trucks, medium-size and heavy trucks, cars, and other series. Its Jiefang series buses and trucks constitute a large share of the market, and its Red Flag limousines are quite well known. The FAW Group also has entered into a joint venture with Volkswagen to produce Jetta and Audi sedans. Over the next five years the FAW Group is seeking to achieve a production capacity of 1 million vehicles, with a total sales volume of RMB820 billion ($10 billion). On June 14, 2002, the FAW Group and Tianjin Automotive Industry Group Corporation (TAIC) jointly announced a merger agreement in which FAW will own 50.98 percent of Xiali Auto (CBU-AutoEnews, 2002a). TAIC also will transfer to FAW its 75 percent equity shares in the Tianjin Huali Automobile Company Ltd., a minivehicle manufacturer. With the acquisition of Xiali and Huali, FAW gains the only segment it missedâlow-end, subcompact economy cars. As Chinaâs leading minicar and minivehicle manufacturers, Xiali and Huali bring to FAW not only two domestic brands, but also their national sales and distribution net- work. Moreover, the acquisition of Xiali gives FAW all the tangible and intangible assets needed to enter the economy car segment with the least capital, time, and risks. Over the past few years the FAW Group has ex- pressed its intention to produce cars with an engine displacement of about 1.3 liters priced at about RMB80,000 ($9,600). In August 2002 Toyota and FAW announced that they would join forces to produce luxury sedans, sport-utility vehicles, and minivehicles for the Chinese marketâ400,000 vehicles a year by 2010. Such a move will place the two automakers in direct contention with the Dongfeng and Shanghai groups and their international partners (Zaun and Leggett, 2002). Dongfeng Motor Corporation (DMC) Originally named the Second Auto Works, DMC has its headquarters in Shiyan City, Hubei Province. At present, DMC has three major produc- tion basesâShiyan, Xiangfan, and Wuhanâwhich form the Hubei auto-
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 53 motive industry corridor. In 1998 DMC produced 190,000 vehicles, mainly heavy-duty trucks, medium-size trucks, and light-duty trucks. Under a joint arrangement with the CitroÃ«n Corporation of France, it also will pro- duce Fukang sedans. DMC is playing the leading role in achieving Hubei Provinceâs goal of âbuilding up a one million vehicle production base.â Beyond its role in Hubei Province, DMC has joined with Honda and Denway Motors in a venture to produce Honda cars in Guangzhou for export (Wall Street Journal, 2002). It also is negotiating a joint venture with Renault-Nissan (CBU-AutoEnews, 2002a). Shanghai Automotive Industry Corporation (SAIC) Shanghai began to manufacture cars in the 1960s, but on a very mod- est scale. In the 1980s it entered into a joint venture with Volkswagen of Germany to produce Santana sedans. By 2000 its production capacity had reached 400,000 vehicles and accounted for 45 percent of Chinaâs car mar- ket, with its profit exceeding the sum of that of all other automakers com- bined. As a result of a joint venture with General Motors, Buick Century sedans began coming off the assembly line at the end of 1998. The Shang- hai Group also plans to develop its production of heavy-duty trucks, large buses, and light-duty vehicles. As of 2002 the Shanghai Group had estab- lished 44 joint ventures with global automotive companies. China National Heavy-duty Truck Group (NHDTG) NHDTG, the largest heavy-duty truck production group, mainly pro- duces Steyr 91 series complete trucks, bus chassis, and engines for Germanyâs Mann Corporation, as well as transmissions, axles, and other products. In 1998 the groupâs total output was almost 9,000 trucks, and the company has set a production goal of 25,000 vehicles. In 2001 the group signed an agreement with Swedenâs Volvo Corporation to com- mence production of heavy-duty vehicles. Joint Venture Partners Over the past few years, foreign companies have increased their par- ticipation in Chinaâs automobile industry. The current status of each joint venture partner is summarized in this section.8 8 This section is based on a three-part series of articles entitled âWorld Automobile Gi- antsâ China Strategies in 21st Centuryâ that appeared in January 2001 in the online version of Chinaâs Peopleâs Daily (2001).
54 PERSONAL CARS AND CHINA Volkswagen Shanghai-Volkswagen was established in 1985 and FAW-Volkswagen in 1991. Since then, the two ventures have sold more than 300,000 vehicles a year, maintaining their market share of over 50 percent. Volkswagen is trying to gradually stagger the products of its two ventures. The First Automobile Works (FAW, Changchun) put out the Audi A6 (C class) in 1999 and the Bora (A class) in 2001; it expects to produce minicars (A class) in 2004. Similarly, Shanghai produced the Passat (B class) in 2000, and family cars (A Class) were launched in 2002. The models retained their competitiveness with comparable products being offered elsewhere in the world. All these models almost keep pace with the international market, and, when completed, the Volkswagen joint ventures will manufacture the top five models, based on overall production, in China. In addition, Volkswagen is studying the possibility of developing a new model to be sold in both China and overseas markets, and it may choose China as the base for export production. In fact, Volkswagen intends to introduce its most advanced manufacturing techniques and product technologies into China and bring its two Chinese ventures, as well as accessory systems, into its global orbit of purchasing, product research and development, and marketing. Volkswagen remains the strongest producer of cars in China with to- tal production of 412,127 in 2001 (Wall Street Journal, 2002). Shanghai Au- tomotive Industry Corporation signed an agreement on April 12, 2002, with Volkswagen AG to extend their joint venture, ShanghaiâVW Auto- mobile Company, for another 20 years to 2030, according to a recent re- port (CBU-AutoEnews, 2002b). The total registered capital of the joint ven- ture will increase to RMB6.3 billion ($760 million) from the current RMB4.6 billion ($550 million). General Motors Corporation Since 1989, General Motors, the worldâs largest automobile manufac- turer, has invested about $2 billion in China to set up three vehicle joint venturesâShanghai GM, Shenyang Gold Cup GM, and Liuzhou Wuling Motor Companyâand one solely funded accessory sales center. General Motors has successfully brought a series of its products into China, in- cluding the Buick sedan, the Buick GL8 for business, the Sail family car, Chevrolets, and pickup vehicles. Because it plans to turn Shanghai GM into its production base in Asia, General Motors has provided the Pan Asia Technical Automotive Center in Shanghai with major support. GMâs overall production of the Buick Century, Buick GL8, and the Sail climbed to 59,729 in 2001(Wall Street Journal, 2002).
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 55 Ford Motor Company Ford, which was the first American automobile manufacturer to enter the Chinese market, in June 1978, currently has in China more than 10 sales agencies, over 40 service facilities, and 2 global accessory sales agen- cies, as well as a technology training center. Its Transit vehicle, codeveloped with Jiangling of China, is now in production. Currently, Ford-brand vehicles control 0.5 percent of the Chinese auto market share, according to the company (Xinhua News Agency, June 18, 2002). Changâan Ford is Fordâs first passenger car joint venture with Changâan Motor Corporation based in Chongqing in southwest China. Ford will introduce a family-size sedan, which is based on its Fiesta plat- form developed in Europe, into the 50/50 joint venture. The $98 million (RMB810 million) joint venture was approved by the Chinese government during the first half of 2001. In preparation for selling both vehicles that it will produce in China and imported Ford-brand autos, the joint venture has selected 25 franchise dealers in China. Ford said earlier that it also plans to set up an auto financing branch to serve local consumers before the first product launch of the joint venture. DaimlerChrysler Sales of DaimlerChryslerâs Chinese product, the Beijing Jeep, declined throughout the 1990s, revealing the need for urgent technological im- provements. On September 27, 2000, together with Beijing Automotive Industry Group, DaimlerChrysler declared that it would invest an addi- tional $226 million (RMB1.9 billion) to strengthen and expand production in China. DaimlerChrysler also has joined hands with Yaxing-Benz (Yangzhou) in bus production, obtained approval to manufacture trucks in Baotou, Inner Mongolia, and signed a technology transfer agreement with Ankai Auto (Anhui) to produce a luxury car. It continues to produce the Jeep Cherokee in Beijing with total production in 2001 of only 4,258 (Wall Street Journal, 2002). PSA Peugeot-CitroÃ«n Group PSA began to enter the Chinese market in the late 1980s. For various reasons, its sedan project in Guangzhou produced only 100,000 cars in 10 years. Then PSA withdrew its funds, resulting in the total collapse of the project, which was taken over by Honda (see section on Honda). PSAâs Shenlong-CitroÃ«n joint venture with Dongfeng Motor Corporation also experienced many setbacks, including the 10 full years required to com- mence operations. In September 2001 Shenlong added RMB3.41 billion
56 PERSONAL CARS AND CHINA ($411 million) to its registered capital via a RMB2.34 billion ($282 million) debt-to-equity transfer, bringing total capital to RMB6 billion ($720 mil- lion). Meanwhile, the French shareholders of CitroÃ«n added an amount that kept its share at 30 percent, and Dongfengâs share declined to 31 per- cent. In 2001 CitroÃ«nâs Fukang (ZX) and Picasso models led the company to being the third largest car producer with 53,680 units (Wall Street Jour- nal, 2002). Renault Renault and the Sanjiang Group in Hubei Province joined forces in 1993 to assemble a light bus, Trafic. But production was suspended be- cause of poor sales after the venture sold only 4,906 Trafic vans in seven years. Renault also has talks under way with Beijing Automotive Industry Group about producing the âScenicâ sedan and with Dongfeng Motor Cor- poration on trucks. As noted earlier, DFC is reportedly in the final stages of negotiating a joint venture with Renault-Nissan (CBU-AutoEnews, 2002a). Toyota Japanâs biggest auto corporation, Toyota, had plans to produce auto- mobiles in Tianjin in 2002. Its Xiali, coproduced by the Daihatsu Motor Corporation and Toyotaâs partner, the Tianjin Automotive Industry Group Corporation, had dominated Chinaâs taxi market. However, in the three years from 1999 to 2001 TAICâs car market share in the country fell drastically, from 18.5 percent to below 10 percent. Xiali had been steadily losing its market share with taxi fleets because large and medium-size cities were choosing larger taxi models. The availability of other subcom- pact cars such as the Yueda-Kia Pride, the Nanya Eagle, and the SAIC- Qirui Chery also drew customers away from the older Xiali model. At the higher end, the successful promotional activities of the Buick Sail, even though launched six months later than TAICâs new Xiali 2000, overshad- owed the latterâs launch. In 2001 the Xiali 2000 sold only 10,000 units com- pared with the 28,000 units sold of the Sail. As noted earlier, Toyota and FAW announced in August 2002 that they would jointly produce 300,000â400,000 luxury sedans, sport-utility vehicles, and minivehicles a year by 2010. (Zaun and Leggett, 2002). Honda Hondaâs well-known motorcycle engine technology has earned it an important position in Chinaâs motorbike market. Its other success is Guangzhou Honda, which will produce a new model each year, includ-
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 57 ing a new minicar. Guangzhou Honda had stated its intention to raise its annual production of Accords from 30,000 to 50,000 units by 2002, but was already exceeding that level in 2001, producing 51,116 Accords. More recently, Honda also announced that it plans to build a factory in China where it will make cars exclusively for export to markets in Asia and Eu- rope (Wall Street Journal, 2002). The new plant will be located in Guangzhou and will be operated in partnership with two Chinese auto makersâGuangzhou Auto Group Corporation, owned by Hong Kong- listed Denway Motors Limited, and Dongfeng Motor Corporation. In the same announcement, Honda said that it plans to increase annual capacity at its existing plant to 120,000 vehicles by March 2003. The Honda Odyssey, a multipurpose vehicle (MPV) model made by Guangzhou Honda, rolled off the production line on April 10, 2002. The retail price of the Odyssey is RMB298,000, or $36,000 (CBU-AutoEnews, 2002b). Nissan Nissan joined Zhengzhou Light Vehicle Factory in 1994 in manufac- turing pickup trucks, but output remains low. It also joined with Yulon Motor Company and Dongfeng Motor Corporation to produce the Fengshen Bluebird in Shenzhen. Finally, Nissan has entered into a part- nership with Renault for sedan manufacture in China. Specific models and investment partners have yet to be announced. Hyundai Corporation Early in 2000 Hyundai Corporation signed a letter of intent to expand cooperation with the Jiangsu Yueda Group, and in September 2000 it for- mally signed an agreement on transferring stock rights and making addi- tional investments to set up a joint venture with equal shares by both sides. In 2001, 7,715 Hyundai-Kia Pride vehicles were produced in China (Wall Street Journal, 2002). According to the state press, China has picked a car made jointly with Hyundai as its preferred vehicle to replace Beijingâs vast and often dilapi- dated taxi fleet in preparation for the 2008 Summer Olympics (Xinhua News Agency, July 24, 2002). The vehicle, the midsize Sonata Saloon, will be produced by a 50/50 joint venture of Hyundai and Beijing Automotive Industry Corporation. Daewoo To qualify for sedan manufacture, Daewoo established two large ven- tures in China in the mid-1990s: FAW-Daewoo Automotive Engines and
58 PERSONAL CARS AND CHINA Shandong-Daewoo Auto Parts and Components Company. Daewooâs bankruptcy in 2000 adversely affected the two projects, as well as a bus project in Guilin. The Shandong project, which still lacks central govern- ment approval to assemble vehicles, is at a standstill. APPENDIX 3-B:CHINAâS FIVE-YEAR PLAN FOR THE AUTOMOTIVE INDUSTRYâGOALS AND STRATEGIES Chinaâs five-year plan for the automotive industry identifies concrete goals and strategies for use in stimulating the rapid growth of the indus- try. The specific goals that affect the automotive industry are listed below: â¢ Total annual vehicle production of 16.2 million units is sought, of which passenger cars will be 1.1 million units and motorcycles 13.0 mil- lion units. â¢ Two to three large automobile groups will be formed, with a sales, distribution, and after-sales service system commensurate with interna- tional standards. Their output will supply more than 70 percent of the domestic car market and will include some exports. â¢ The government will nurture the formation of 5â10 large supplier groups, which will compete in the international market; the largest three companies should enjoy a 70 percent share of the domestic market. â¢ The country also will form three or four large motorcycle group corporations, which will be highly competitive in the international mar- ket. â¢ The number of diesel-powered trucks and buses will increase, with all medium-size vehicles powered by diesel engines. The produc- tion of diesel-powered cars and minivehicles also will be initiated. Out- put of diesel vehicles will increase from 29.7 percent to over 35 percent. â¢ Output of alternative fuel buses and taxis also should increase, to about 2 percent of total output. â¢ Cars equipped with carburetors and using CFC-12 (chlorofluoro- carbon) as a refrigerant will be discontinued. â¢ Safety features will significantly improve, with antilock braking systems (ABS) applied to large and medium-size buses and heavy-duty trucks. More passenger cars will be equipped with ABS and air bags, and new cars and light and minibuses will satisfy side-impact require- ments. â¢ New cars, light and minivehicles, large and medium-size buses, and heavy-duty and medium trucks should meet European Emission Standard II (Euro II) emissions standards. Mid- to high-level cars and luxury large and medium-size coaches should meet Euro III emissions
STRUCTURE AND CAPABILITY OF CHINAâS AUTOMOTIVE INDUSTRY 59 standards. New types of four-wheeled farm vehicles powered by multicylinder engines should meet Euro I standards. China is aiming to achieve international emissions standards by the year 2010. â¢ Average fuel consumption rate of new cars and light vehicles will be reduced during the plan period by 5â10 percent and that of heavy- duty and medium-size trucks by 10â15 percent. â¢ For passenger cars, emphasis will be on developing economy models that have engine displacement of 1.3 liters and that are smaller and priced around RMB80,000 ($9,600). Such economy models should meet national safety, fuel efficiency, and emissions standards and the demand of individual consumers. â¢ For taxi models, environmentally friendly cars should be devel- oped and used. â¢ Balanced development is needed for passenger car diesel engines, single-fuel compressed natural gas (CNG) and liquefied petroleum gas (LPG) engines, and hybrid power systems that meet Euro II and Euro III emissions standards. â¢ For trucks, emphasis will be put on heavy-duty vehicles with en- gine displacement of 9 liters or more and horsepower of 300 and up for use on expressways. These include large horsepower tractor trailers, heavy-duty special-purpose vehicles, and chassis and diesel engines with 300 and higher horsepower that meet Euro II and III emissions standards. â¢ On the basis of current manufacturing conditions and facilities, light and minivehicles for use in the countryside will be developed. â¢ Emphasis will be placed on the development of environmentally friendly city buses. â¢ The focus on new motorcycle development will be on environ- mentally friendly motorcycles (such as fuel injection and electric mod- els), engines that meet new emissions standards, and key parts and com- ponents. In the meantime, the industry should develop new, reliable, inexpensive models that are easy to repair and that suit rural road and loading conditions. The government will continue to support motorcycle exports. â¢ The proportion of electronic products in a motor vehicle and the use of high-performance, lightweight, energy-saving, and environmen- tally friendly materials will be expanded. â¢ Research and development related to electric and hybrid vehicles will be increased. â¢ Research and development related to the use of recycling materi- als for environmental protection will be expanded. â¢ Additional enterprises will be supported in their efforts to set up modern sales and distribution systems that combine sales, parts supply, service, and repair and information feedback using the Internet.
60 PERSONAL CARS AND CHINA â¢ Guidelines and principles for fair competition, opening to the out- side world, and fostering independent development capability while seeking international cooperation will be developed. â¢ A unified national policy to expand the domestic automobile mar- ket will be created. â¢ National standards will be developed for car purchase and use by eliminating excessive fees; simplifying the procedure for car purchase, registration, and use; and increasing the availability of car purchase loans. â¢ For nationwide fuel economy and promotion of economical cars, a comprehensive fuel tax system will be implemented. â¢ The official used vehicle supply system will be reformed. â¢ Economic and technical cooperation with international partners will be encouraged. â¢ Fuel quality will be improved. â¢ Local governments will be responsible for roads, parking, and other infrastructure. They also will have authority to improve traffic manage- ment and road capacity. REFERENCES Asian Strategic Investments Corporation. 2000. Chinaâs Agricultural Vehicle Industry: A Market Survey. Beijing, June. CBU-AutoEnews (China Business Update). 2002a. 8(June 27). âââ. 2002b. 3(April 18). China National Automotive Industry Consulting and Developing Corporation (CAC). 2001. Chinaâs Automotive Industry: Its Past, Present and Future. Online. Available at www.cacauto.com.report-en/report8.htm. Accessed October 10, 2002. China National Automotive Industry Consulting and Developing Corporation (CAC-China Auto Consulting) and Economic Information Department, China Council for the Pro- motion of International Trade (CCPIT). 2002. Production and sales of motor vehicles in JanuaryâDecember 2000. Online. Available at www.cacauto.com/databank/ prsa00121.htm. Accessed August 28, 2002. China State Economic and Trade Commission. 2001. Chinaâs 10th Five-Year Plan for the Development of the Automotive Industry (2001â2005). Translation made available by Volkswagen Corp. June. Johnson, C. 1982. MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925â 1975. Stanford: Stanford University Press. Peopleâs Daily. 2001. World automobile giantsâ China strategies in 21st century. Online. Available at http://english.peopledaily.com.cn/200101/12/eng20010112_60306.html; http://english.peopledaily.com.cn/200101/15/eng20010115_60493.html; http://english.peopledaily.com.cn/200101/16/eng20010116_60600.html. Accessed May 13, 2002. Wall Street Journal. 2002. Honda aims to export cars from China. July 11. Zaun, T., and K. Leggett. 2002. Toyota plans to produce luxury vehicles in China. Wall Street Journal. August 30.