Zheshang Auto Parts Industry Development of Private Enterprises

The Flaw in Independent Brands and Its Impact on National Interests in the Automotive Industry Change is never easy, but enduring pain is far worse than temporary discomfort. This is a fundamental principle of development. “We have had a joint venture with a multinational company for 20 years. In that time, none of the joint venture plants developed a Chinese brand, and more than 90% of the market was lost. The market is evolving with technology, and what kind of technology is being exchanged? Practice is the sole criterion for testing truth. We should encourage the development of independent brands.” On November 8th, at the Zhejiang Taizhou International Convention and Exhibition Center and the China (Zhejiang) High-Level Forum on Auto Brand Independence, excitement was sparked, and a strong call for China to vigorously develop its own brands reached a peak. “Initially, the purpose of the market-for-technology exchange was to gain access to advanced technology. However, by giving up the market, we only absorbed and exchanged technology through joint ventures. Now, we face significant pressure,” said Mr. Jin Luzhong, a researcher from the China Science and Technology Promotion and Development Research Center under the Ministry of Science and Technology. “The situation must change because it directly affects national interests.” The concept of “market for technology” has been central to China’s automotive growth. According to statistics, in 2004, China produced 5.04 million vehicles, with a 25% growth rate in the first four years of the 15th Five-Year Plan. The industry's value exceeded 250 billion yuan, with private car ownership reaching 55%, or 24 per thousand people—far below the international average of 103. China has now become one of the world’s top car producers and consumers. However, this progress came with a downside. While foreign companies entered the market and helped boost the industry, they also forced domestic manufacturers into a difficult position. “In exchange for technology, we only gained usage rights, not ownership. It didn’t include product development. It was just manufacturing and processing. Hence, after 20 years of joint ventures, no Chinese brand emerged—this is not surprising,” Jin noted. He pointed out that many aspects of production, such as quality certification, factory design, supplier selection, and imported parts and equipment, were controlled by foreign partners. More importantly, while joint ventures brought in foreign capital, much of the profit went overseas. For example, Volkswagen’s global production in 2003 was 5 million units, with 700,000 made in China—14% of total output—but 80% of profits stayed abroad. GM once joked, “China got GDP, and we got Germany’s profits.” The auto industry is a key driver for related sectors like steel and electronics, acting as a locomotive for economic growth. Yet, joint ventures struggle to fulfill this role. Take Beijing-Hyundai, for instance. They discarded most of the original Beijing Auto Factory equipment and imported everything from South Korea. Only a few components were made domestically. In contrast, Geely’s chairman, Li Shufu, reported that 80% of their spare parts come from local suppliers, showing the difference between independent and joint venture models. Looking ahead, the “Eleventh Five-Year Plan” aims to address these issues. Zhang Shulin, executive vice chairman of the China Association of Automobile Manufacturers, emphasized three key areas: enhancing R&D capabilities, developing independent brands, and promoting energy-efficient and new energy vehicles. During the 11th Five-Year Plan period, the government may invest significantly to support automakers. Large enterprises are expected to develop their own intellectual property and vehicle platforms, including engines. Jin Luzhong echoed this sentiment, stating that while past policies focused on self-development, current conditions demand a shift toward independent innovation. With Chinese brands now capturing over 21% of the market, progress is evident. “The time for reform must not be too long, otherwise problems will worsen,” Jin warned, citing examples like Geely and Chery. Taizhou, known for its private sector-driven growth, has become a hub for independent brands. As Li Shufu said, “We may be poor, but we have ambition.” Taizhou’s auto parts industry is already among the most concentrated in China, with Yuhuan County dubbed the “Chinese Auto Parts Manufacturing Base.” By 2004, Taizhou had five complete vehicle manufacturers and nearly 3,000 auto and motorcycle part companies, achieving an industrial output of over 31 billion yuan. Zhejiang’s strategy includes forming two to three large auto groups with sales over 30 billion yuan and cultivating 10 specialized “small giants.” Despite challenges, the region continues to push forward, aiming to build globally recognized brands. As the automotive industry evolves, the path of independent development is becoming increasingly clear.

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