China is getting on wheels: varieties of development, car market reform and globalization

by Qiushi Feng*

China is getting on wheels. Over the past three decades, with unparalleled speed, China has emerged as the world’s largest producer and consumer of passenger cars. Such a rapid growth is accompanied by profound changes of the Chinese economy, both externally and internally. The domestic market reform and the ongoing globalization have reconfigured China’s economy, as well as its carmaking sector. Focusing on this important economic sector in China, Variety of Development: Chinese Automakers in Market Reform and Globalization reveals how local institutions have moderated structural changes at national/global levels, and consequentially generated significant organizational diversities in the production sphere.
variety-of-developmentThis book begins with some intriguing observations that Chinese carmakers have been evolving differently despite the fact that they experienced similar external changes. For example, in the contemporary Chinese market of passenger cars, a large number of state-owned firms are producing foreign-branded cars in the joint ventures with foreign automakers; simultaneously there are active private firms making cars independently, with national brands. In the same market transition, why did Chinese assemblers develop different ownership structures? As the world car industry becomes globalized, how did Chinese automakers choose different technology strategies? It is thus the central aim of this book to explain the great variety of Chinese car assemblers to organize their production in the market transition and globalization.
Social scientists long use the production force and production relations in understanding the process of production, and this book proposes to classify the Chinese carmakers along the line of ownership structure and technological strategy. Under the light of these two criteria, four extant production models are identifiable among Chinese carmakers, namely enterprises owned by the central government and producing foreign-branded cars through joint ventures (Model 1), enterprises owned by local governments and producing foreign-branded cars through joint ventures (Model 2), enterprises owned by local governments and making national cars independently (Model 3), and enterprises privately owned and making national cars independently (Model 4). More details are illustrated in the appendix of the book.
Indicative of various development pathways of Chinese carmakers, such production variety poses some puzzles for a number of theoretical perspectives. Set against the backdrop of market reform and globalization, the Chinese car sector may be reasonably assumed with dominance of private enterprises and foreign products. The resilience of state-owned automobile enterprises and the rise of national cars in China, however, put such scenarios in question. Next, state-sponsored automakers have less interest to make national cars in China, as seems not in line with the literature of the developmental state. Moreover, the Chinese national-car makers are often small-sized, which is a mismatch to Schumpeter’s hypothesis in economics that larger firms are more capable in innovations. Last, against the wisdom of ‘global value chains’, which posits that domestic firms in developing countries could upgrade through connections to foreign corporations, the Chinese national car makers operate independently without western partners.
This book provides an institutional analysis to explain the developmental variety of the Chinese carmakers. Given the requisite long production chain and complicated coordination system, automobile manufacture is highly capital- and technology-intensive; and the car sector thus becomes attractive to many actors after China launched the market reform. Initiatives to produce cars have sprouted across China since the 1980s, and often developed into major industrial projects, involving multiple stakeholders such as the central government, local governments and local enterprises. Elucidating how these projects were carried out is indeed the key to capture the source of variance in ownership structure and technology strategy among Chinese carmakers.
I argue that the pre-transition national positioning of a given local economy created path-dependencies that shaped the local political structure and configuration of developmental ideas towards car projects during the reform. The local political structure enabled and regulated the relevant stakeholders to pursue distinct interests in the project, whereas the configuration of developmental ideas stimulated and nurtured the rationales and strategies adopted by these stakeholders. From this perspective, I take the ownership structure and technological strategy of Chinese car assemblers since the 1980s as outcomes of local socio-political processes, characterized by power-differentiated interactions among related actors with differing developmental ideas.
Empirically, this book examines four distinct cases out of thirteen major Chinese carmakers (for details, please refer to the appendix), each of which is representative for one of the four models, including First Auto Work (FAW), the Shanghai Automotive Industry Corporation (Group) (SAIC), Chery Auto, and Geely Auto. These four cases are chosen to demonstrate how local institutions have shaped ownership structure and upgrading strategy of a Chinese carmaker. The case of FAW, representative of Model 1, unfolds as a history of the central government rebuilding its previous largest national auto-factory in the reform, with a rationale to acquire foreign technologies through joint ventures. In contrast, Geely Auto (Model 4) showcases how Taizhou city of Zhejiang province as a previously forgotten land in the national economic map nurtured a vigorous private economy in the reform, giving rise to one of the most active carmakers of national brands. The stories of SAIC Group of Model 2 and Chery Auto of Model 3 both feature the prominent role of a local government. However, the former is from Shanghai, one of China’s most politically prestigious cities, whose strong bureaucracy persuaded the central authority to approve joint ventures of cars for the sake of local economy; whereas the latter is in Anhui province, a region of less priority in the national industrialization plans: the local officials had to start a car project underground after the reform, as in the eyes of the central administration, it was a serious violation of the national industrial policy.
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* Qiushi Feng, PhD, National University of Singapore (‫fengqiushi@nus.edu.sg)

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