KEITH CRAIN

China's government flexes its muscles

COMMENTARY
Keith Crain is editor-in-chief of Automotive News.
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Audi just paid a fine of about $40 million.

Mercedes-Benz is in line to get fined as well.

Nearly every automaker is at risk these days of doing something wrong in the eyes of China's government.

A good friend told me some time ago that China would nationalize all foreign car companies one day. Another auto executive said his company expected to lose its investment in China -- when the Chinese said it was time to leave.

Everyone knows that the Chinese want all the technology that they can get. They are hungry for manufacturing and engineering information from their foreign partners.

The only important ingredient that they can't get their hands on is the design element of auto manufacturing. Creativity doesn't come in a book. Part of it is learned, but the most important part comes from a designer's DNA.

I am not sure that the Chinese are ready to set off on their own. Creating automobiles is a very complex and creative process. Judging from the products that have been created without foreign help, Chinese automakers simply are not ready to compete on a world stage.

Obviously, if China's government limited Chinese consumers' range of choices to only products from Chinese automakers, then the local automakers wouldn't have any problems. Consumers in the former East bloc put up with Trabants for decades because they had no choice. But when the Berlin Wall fell, that company just about disappeared overnight. Plenty of better vehicles were available and consumers opted for them.

I would be surprised if it happened all at once, but it seems inevitable that there will be a takeover of foreign automakers' interests in China.

The Chinese are more than willing to wait until they have gotten what they think is the maximum value of intellectual property. They are trying to learn as much as they can as quickly as possible.

Their students come to western universities. They are trying to encourage foreign schools to set up shop in China.

This is a patient nation and a decade or two will not be that long. But if you read the handwriting on the wall, it would seem inevitable. The challenge facing foreign automakers is to repatriate profits from their investments on an ongoing basis, so if and when the change happens, they've recouped what they put in.

China is the world's largest auto market, and it's still developing. But investing in it makes sense only if you don't lose your entire investment.

You can reach Keith Crain at kcrain@crain.com.

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