SPEAKING
FREELY China's
auto makers spurn foreign
suitors By Irina Aervitz
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
It is not news that
the production capacity of China's automotive
industry is growing fast. The news is that its
technological sophistication is speedily improving
too.
Until the recent past, most Chinese
companies relied on their foreign joint-venture
partners for technology. However, that situation
is changing. Chinese companies are becoming more
and more self-sufficient by purchasing technology
from foreign companies without engaging in
joint-venture arrangements.
This trend can
be attributed to the recent financial successes of
Chinese auto enterprises that
invested their resources in buying or developing
technology. One of the examples is Beijing-based
Beiqi Foton Motor Co Ltd, or Foton. Foton is a
largely "self-made" company; its experience with
joint ventures is very limited.
A new
state-owned enterprise, Foton was established in
1996. In 2004, its sales volume reached about
350,000 automobiles. In 1998, the firm was listed
on the Shanghai stock exchange.
Since 1999 Foton's light duty truck has been
ranked No 1 in sales among Chinese companies. In
2004, 341,000 vehicles were sold and brand value
amounted to 10.6 billion yuan US$1,3 billion).
Foton's development speed and growth rate are
astonishing.
The company not only sells in
China, but also exports - about 9,000 units in
2004. Foton exports to the Middle East, Eastern
Europe, Southeast Asia and Africa. Light duty and
medium-heavy duty trucks are popular in these
areas of the world because of the affordable
price. The key to success is the market niche that
the company occupies - it produces trucks and
buses.
Furthermore, the company offers a
diverse range of products. Foton Motor produces a
full range of commercial vehicles. The company now
has a 40% market share for commercial vehicles in
China.
The firm is keen on enlarging its
product line even further, including developing
its own passenger car. Accordingly, Foton is
investing money into research and development
(R&D) programs and the new Foton R&D
center, which is being constructed now at an
astonishing speed. About 1,000 employees work at
the Foton R&D department, including foreign
and domestic engineers. In 2003, Foton Motor
and DaimlerChrysler signed a framework agreement
for strategic cooperation and a prospective joint
venture in truck manufacturing. Technology
transfer from DaimlerChrysler was part of this
agreement.
Unfortunately, a joint venture has
not yet been created. There is an objective reason
for this: DaimlerChrysler is the only international
auto maker in China that produces
both commercial and passenger vehicles.
DaimlerChrysler already has two joint
ventures in passenger car manufacturing and two
joint ventures in commercial vehicle
manufacturing. According to Chinese state
regulations, only two joint ventures are allowed
in each category. To "marry" Foton,
DaimlerChrysler would have to abandon one of its
current "spouses" in commercial vehicle
manufacturing.
However, this problem does
not constitute the only obstacle in the way of the
joint venture. Another obstacle is the possible
reluctance of Foton to "marry" DaimlerChrysler in
exchange for technology. Furthermore, this
prospective Foton/DaimlerChrysler joint venture in
heavy duty truck production is only for the
Chinese market, which is somewhat against the
ambitions of the Chinese government to promote
exports.
The reasons identified above
might explain why this joint venture project has
been dragging for almost three years without much
progress.
Illusions aside, it is quite
clear that DaimlerChrysler is in China for the
Chinese market, not to help Foton and similar
companies in technological development.
DaimlerChrysler does not offer new technology; it
seeks to produce a stable, quality product with an
affordable price tag for the Chinese market.
Essentially, DaimlerChrysler is offering
secondhand technology. Foton is already capable of
purchasing this kind of technology without
entangling itself in a joint venture.
Furthermore, DaimlerChrysler is keen on
creating a joint venture in truck manufacturing
rather than in engine manufacturing. The recent
project to create a joint venture between Foton
and Cummins, an American engine manufacture, has
more potential to be successful because it has
been conceived as engine rather than truck
production.
In spring 2006, Cummins and
Foton signed a feasibility study for a joint
venture to produce light-duty diesel engines in
China. The 50-50 joint venture would produce two
types of engines based on Cummins designs. The two
companies are expected to invest capital,
equipment, land and technology. Cummins, based in
Columbus, Indiana, leads in China in the
production of heavy duty diesel engines. Foton is
the largest producer of light duty trucks in
China. This "marriage" seems more plausible than a
union between DaimlerChrysler and Foton, even
though it would become the ninth production
operation for Cummins in China.
DaimlerChrysler is totally dependent on
Foton's benevolence. DaimlerChrysler does not have
any leverage for negotiation with the Chinese
government, unlike, for example, Honda in the
Guangzhou development district. In Honda's case,
two major forces pushed the joint venture project
to its conclusion, allowing Honda to have 65%
ownership.
Namely, the authorities of the
special economic zones (SEZs)and Beijing's policy
to encourage exports. SEZs are interested in
attracting investors, so they negotiate with the
central government on behalf of prospective
investors and push the projects forward.
DaimlerChrysler's joint venture with Foton was not
intended to be located in a SEZ. In fact,
DaimlerChrysler was initially interested in using
Foton production facilities as part of the
joint-venture agreement rather than building a new
factory.
Furthermore, there are not many
"single" large Chinese auto manufacturers left
today in SEZs to have a joint venture with - most
are already "taken". For example, Dongfeng is
married to Nissan (Nissan is part of the Renault
group, the major competitor of Mercedes Benz in
Europe), China National Heavy Duty Truck Group Co
Ltd (CNHTC) is married to Volvo, etc. For
DaimlerChrysler, irrespective of business-related
factors, Foton was the only truck manufacturer
left on the dance floor.
Chinese companies
have shifted their focus from relying on joint
ventures with foreign partners as a source of
technology to being more independent. Foton seeks
cooperation with a variety of partners. The
company purchases technology or consulting
services; for example, an English consulting
company, Lotus, is assisting Foton in fulfilling
some R&D projects.
The lack of
commitment from Foton towards a joint venture with
DaimlerChrysler demonstrates a shift in technology
appropriation strategy among Chinese auto
enterprises. Foton wants technology, but does not
want to share its profits with a foreign partner
in a joint venture.
Irina
Aervitz is a PhD candidate in the political
science department at Miami University in Oxford,
Ohio. She is currently writing her dissertation on
state policies in the Chinese and Russian
automotive sectors.
(Copyright 2006
Irina Aervitz.)
Speaking Freely is
an Asia Times Online feature that allows guest
writers to have their say. Please click hereif you are interested in
contributing.
