In sum, the Chinese government’s strategy to modernize the country’s state-owned automakers and create a globally competitive auto industry has had at best mixed results. On the one hand, China has become the world’s largest market for autos and second largest automobile producer. The industry has created hundreds of thousands of jobs in upstream and downstream industries, not to mention a lucrative source of new tax revenues. The automotive industry as a whole contributed about 7 percent of GDP in 2007, up from 2.5 percent in 1990. 31 On the other hand, the Chinese ‘Big 3’ – FAW, SAIC and Dongfeng – could hardly be considered national champions on par with Japan’s Toyota or Korea’s Hyundai.
Although these state-owned behemoths have learned how to produce cars more efficiently, they have not harnessed the ability to develop their own cutting edge platforms from concept to mass production. They remain dependent on their foreign partners for product development, marketing and branding of new vehicles. Efforts to produce their own line of cars have not been well-received by Chinese consumers, and none of the Big 3 has successfully penetrated foreign markets.
The government’s JV policy has run its course for both MNACs and their Chinese partners. The MNACs gained entrance to the Chinese market and some of them have made handsome profits, but they are all hampered by the continued 50 percent limitation on their ownership of JV enterprises. This limitation has at least two negative ramifications for the ability of MNACs to expand further in China. First, all decisions at the JVs must be consensual and can only be made via a time-consuming bargaining process with their Chinese partners, making any changes in strategic or operational direction slow and incremental. 32 Second, MNACs are still reluctant to share cutting edge technology, in large part because their Chinese partners are turning into direct competitors. Their Chinese partners ‘borrow’ technology and processes from MNACs, and they often hire away the best talent from the JVs into their independent divisions working on self-brands. For example, Chen Hong, once the general manager of SGM, was selected to become the president of SAIC in 2005. Similarly, Gao Weiming, previously a vice president at PATAC, was chosen to lead SAIC’s own technology center.
It is not surprising that MNACs are only willing to bring last generation technology to China, while their cutting edge technology development remains in their home countries. When the interests of MNACs and their Chinese partners diverge, trust breaks down and the relationship suffers. From the perspective of the Chinese SOEs, the MNACs continue to bring in business and help build economies of scale, but they refuse to share their latest technologies and product development know how. This lack of meaningful technology transfer frustrates Chinese executives and officials, but the JVs are still too lucrative to give up. 34 After all, why dump scarce resources and energy into a risky project like new vehicle development when the JV operations generate significant cash flow? The JV relationships ensnare the Chinese firms in dependent relationships and hamper the possibility for technological self-reliance. As one SAIC deputy managing director puts it, the JV model is a “dead road”.
