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2 SPEAKING
FREELY Chinese cherish their
Chery 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.
A lot has been said
recently about the looming menace of Chinese cars
entering the North American and European markets:
the arrival of Chinese imports seems inevitable
despite
protectionist measures, trade
wars in the World Trade Organization (WTO), and
quality concerns. The American auto giants are
crumbling, while the Chinese harbor dreams of
building their own giants. Over the past few
years, China's exports of automobiles and parts
have escalated rapidly.
In 2006, China's
auto exports hit a record 340,000 units, more than
double the figure for 2005, according to the
Chinese Ministry of Commerce. US imports from
China increased from US$1.6 billion in 2000 to
$5.3 billion in 2005. Most automotive-sector
exports to the US were auto components rather than
vehicles. Complex auto parts such as engines have
been consistently imported from China: $54 million
worth in 2000 to $197 million in 2005.
Thus complete cars are the next logical
step.
Last year Vice Minister of Commerce
Wei Jianguo announced that China's goal was to
enhance the volume of vehicle and auto-parts
exports to $120 billion, or 10% of the world's
total auto sales volume, in the next 10 years.
China's largest clients currently are the Middle
East, Latin America, Africa and Russia. Chinese
cars sell in these markets mainly because of price
competitiveness.
Major trends and
developments Overall, the major trends in
the automobile industry in China include
government efforts to develop a national car,
encourage exports, and restructure and consolidate
state-owned enterprises. In the meantime, auto
enterprises are seeking markets for their products
at home and abroad, engaging in research and
development (R&D), and shifting from
technology dependency on foreign partners in joint
ventures toward independent production.
At
the moment, the American and European markets seem
unattainable because of low levels of safety and
emission standards of Chinese exports. To create
an internationally competitive car, Chinese
companies and government-sponsored programs
concentrate on enhancing the following
technological capabilities: gasoline and diesel
powertrains, electronic controls,
emissions-control technologies, the application of
complex engineering methods to optimize vehicle
performance, and the use of new materials.
The 2001-05 plan for the auto industry
called for its massive restructuring - from 118
individual manufacturers to three large automotive
groups and from several hundred parts suppliers to
five to 10 large supplier groups. Auto-industry
consolidation was seen as a strategy to become
internationally competitive. The ultimate goal was
to create a Chinese version of the "Big Three" US
automobile makers. Even though the US model of
auto consolidation has been recently discredited,
last year the Chinese government issued a new
policy discouraging existing car makers from
expanding manufacturing capacity too fast and new
players from entering the market. Thus
consolidation measures are still being
implemented.
The Chinese government
encourages domestic car makers and joint ventures
with foreign partners to export. State support
does not, however, extend to all of China's many
auto enterprises. To weed out companies that are
too small to be serious exporters, the government
introduced export quotas this year. Furthermore,
according to the 2007 Catalogue for Export License
Management, companies are now required to obtain
authorization to export automobiles as well as
full sets of automotive parts or chassis.
Almost all large international automobile
companies have operations in China. Chinese
auto-industry policy includes very explicit
requirements for high levels of local content for
joint ventures with foreign car makers: 40% local
content at startup, 60% by the second year, and
80% by the third year for passenger-car
manufacturers. For commercial-vehicle
manufacturers, the localization requirements are
even higher.
These requirements indicate
that the government is attempting to enhance the
volume of domestically produced automobile parts
as substitutes for imports. The local-content
provisions indirectly increase the level of
technological sophistication among domestic
manufacturers.
State support of
export One way or another, Chinese
automobile manufacturers receive assistance from
the state. Automotive enterprises in China are
predominantly state-owned. Of course, the cases of
direct financial support are not disclosed,
especially in light of Chinese membership in the
WTO.
There are several
export-encouragement mechanisms that the state can
exercise. The so-called "illegal" mechanism to
enhance exports is state subsidies for state-owned
enterprises. The "legal" mechanisms include
export-duty and tax exemptions for both Chinese
enterprises and joint ventures with foreign
partners.
Another way to encourage exports
is to allow a foreign partner to have more than
50% ownership in an export joint venture such as
in the case of Honda Automobile (China) Co Ltd in
the Guangzhou Development Zone. Honda was allowed
to have 65% ownership in a joint venture, which
was unprecedented. A few years later, in 2004,
legislation came into force permitting foreign
companies in the auto industry to have up to 70%
of shares if they export.
There is,
however, a thin line between the so-called "legal"
and "illegal". At present, because of China's
membership in the WTO, Beijing is cautious about
openly subsidizing enterprises. The WTO allows
China's trade partners to reciprocate if the WTO
rules that unfair trade or violations of trade
agreements occurred.
China has been
criticized by its trade partners (especially the
US) for using export-duty reductions or
exemptions, which is considered unfair practice.
China's trading partners even frown on the
fact that the country has so many state-owned
enterprises, which are allegedly supported by the
state. According to a press release from the
Office of the US Trade Representative issued this
year, "China applies a series of measures that, by
allowing for refunds, reductions or exemptions
from taxes and other payments, appear designed to
subsidize exports of manufactured goods or support
the purchase of domestic over imported equipment."
In March, China terminated a central-bank
program that allowed a group of large exporters to
take advantage of discounted loans. The US had
challenged the program, saying it was a prohibited
export subsidy, and requested WTO
dispute-settlement consultations. The loan program
was one of many export-encouragement activities
that the US identified as possible violations of
WTO rules.
State subsidies aimed at
increasing exports is a controversial issue.
Countries are inventive in devising
various camouflaged measures of export
amplification to avoid the "subsidy" stigma.
Sometimes it takes years for WTO experts to attest
that subsidization actually took place. The WTO
has a number of mechanisms to
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