China's new leaders should not coddle Chinese carmakers
 | Yang Jian is managing editor of Automotive News China. |
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SHANGHAI -- China's new leaders who took office last week are beset by economic crises, so the auto industry may struggle to receive consideration.
But the leaders should do one big thing for China's automakers: Stop favoring state-owned companies at the expense of their private rivals.
Under government policies issued in 2006, Beijing maintains "absolute control" of sectors such as defense and telecommunications, and "relatively strong control" over automakers and some other industries.
So how does the government exert control? By allowing only state-owned automakers to form lucrative joint ventures with foreign companies.
Over the past 30 years, each big state-owned company has enjoyed big profits from these ventures. The 2006 guidelines gave new life to this policy.
In 2010, for instance, Chongqing Changan set up a joint venture with PSA Peugeot Citroen, and this year Chery won approval to partner with Jaguar and Land Rover.
By doing so, the government expects these state-owned automakers to enjoy the profits generated by their joint ventures and learn the secrets of product development from their partners.
Yes, Changan and Chery will probably generate profits from their new joint ventures, but it is naive to expect them to learn much from their partners.
For one thing, global automakers cautiously shield technology from their Chinese partners. For another, as long as state-owned automakers comfortably share the profits from their joint ventures, they have no incentive to learn. To make things worse, the government has encouraged China's state-owned automakers to expand despite their inability to compete. Under the plan, eight domestic automakers -- all state-owned -- were encouraged to expand organically as well as through mergers and acquisitions.
But the plan has backfired. State-owned manufacturers may listen to government bureaucrats, but they do not listen to market demand. Any government policy that props up state-owned players is doomed to failure. It is high time for the nation's new leaders to abandon this policy.
