Beijing presses carmakers to share technology

Beijing presses carmakers to share technology

China’s drive to boost ‘indigenous innovation’ has sparked complaints from multinational companies about enforced transfers of technology
Foreign carmakers are bowing to pressure from Beijing to transfer more technology to their Chinese partners by launching jointly-designed brands aimed at small car buyers on the mainland, the world’s largest vehicle market.

Global carmakers are eager to placate Beijing, but also hoping the move will help them compete for buyers at the low end of the Chinese market, which has been the fastest growing, and most competitive segment, in a country where 13.8m passenger cars were sold last year.

Beijing has been pressuring all foreign-Chinese joint venture carmakers to develop indigenous brands as part of the drive to boost “indigenous innovation” – a policy which has sparked complaints from multinational companies about enforced transfers of technology.

“All joint ventures of foreign car manufacturers – like FAW Volkswagen and SAIC Volkswagen – have been asked to develop local brands,” says Karl-Thomas Neumann, head of VW in China, confirming talks about a joint brand with the German carmaker’s two local partners.

“Chinese people are frustrated by China’s slow pace at standing on its own feet to make cars,” says Mike Dunne of Dunne and Co, an Asian auto consultancy. Chinese manufacturers have about 30 per cent of their domestic market, even after a generation of joint venture co-operation with the world’s largest carmakers. “They have tried the conventional joint venture approach for 25 years and the results have been much less than they had hoped for in terms of Chinese companies securing technology,” says Mr Dunne. “Now they want to force the matter”.

SGMW, the joint venture between General Motors, SAIC, and Wuling, maker of mini-commercial vehicles in China, recently produced its first joint own brand car, the Baojun 630. It is aimed at “first-time buyers in the country’s second and third tier markets,” says Kevin Wale, GM’s head of China. Nissan and its joint venture partner Dongfeng Motors showed its Venucia indigenous small concept car at the recent Guangzhou auto show. It will launch in 2012. Honda and Guangzhou Automobile Group will sell an own brand car called the Li Nian GM says the rationale for its move is purely commercial. “With Baojun we can get access to a market of about 6m vehicles that otherwise we would leave untouched,” the company says. Matthew Tsien, vice-president of SGMW, says the company plans to introduce one new Baojun model every year, including sport utility and multi-purpose vehicles. VW sees an indigenous brand as “an opportunity to get into new market segments, especially those we have not been able to get into to so far”.

Chinese manufacturers dominate the mainland market for cheap small cars, but foreign manufacturers have increasingly gone downmarket to meet them head-on, introducing cheaper smaller cars to bid for market share in an area that experienced high growth in the last two years due to government tax incentives.

“This allows them to keep their own brands above the fray,” says Mr Dunne. Foreign brands in China enjoy a reputation for quality that could be jeopardised if they go too far downmarket with their global brands. Beijing will hope to export these joint-venture brands overseas but industry executives are sceptical. “If they think they can export these, they can forget it,” says one foreign carmaker, noting that most Chinese car brands are not ready for export – and joint venture cars will still be seen, overseas, as Chinese cars.

Some foreign carmakers say they see the drive for joint venture brands as nothing more than a “technology shakedown” to force them to share technology with their domestic partners and eventual rivals. They point to Chinese government proposals that all new energy vehicle joint ventures should be majority controlled by the Chinese partner, instead of the more common 50:50 arrangement. That proposal caused a backlash among multinational manufacturers, and could be revised.