OPINION

Auto Industry: Long Way to Go

When China joined the World Trade Organization in 2001, worries proliferated that the country's auto industry would receive a heavy blow. The concerns turned out to be unnecessary as the sector has been growing remarkably.

China's auto market is getting into full swing, but problems still need to be properly addressed. The industry has room to improve in terms of branding, talent and technologies.

First, Chinese auto manufactures have a lot to do to improve their brand recognition. In the past 10 years, major multinationals have established a solid market foothold in China, with distinctive brand characteristics. In striking contrast, their Chinese competitors have focused on sales and put little effort into branding. Such a product-driven business model can increase sales volume in the short term, but that means China's auto industry remains at a backward stage of development. How to shift their focus from product development to brand development will be a daunting challenge for Chinese firms.

Second, the industry faces an acute talent shortage, especially high-end talent in automobile design. In China, foreign designers have largely dominated the field of automobile design, including most local and overseas brands. The number of local designers is increasing, but they still need time to catch up with their foreign counterparts in product design and engineering design.

Third, the technological disadvantage has been a significant barrier undermining the industry. China has become the world's largest auto market, with sales totaling around 18.5 million units last year. However, most core technologies for vehicles and components are still in the hands of foreign companies, leaving domestic firms in a weak position to compete.

In recent years, joint venture auto companies have developed a number of so-called self-owned models. But many of them were simply based on outdated foreign models. Joint ventures restructured the old models into new ones to make windfall profits. Policymakers have obviously realized the problem as they tightened approval thresholds for the establishment of new joint venture auto firms.

Meanwhile, in the area of new energy vehicles, Chinese firms also face the risk of falling behind. In the past few years, domestic auto producers have made a push into electric cars, which raised hopes for the leapfrog development of the entire industry. But soon, multinationals regained the lead by releasing new electric vehicle models and strengthening research into new materials. China's onceroaring tide of new energy vehicles seems to be cooling down.

The complicated situation made policymakers hesitant and their inconsistent policies have cast a shadow over the sector. For example, the government has withdrawn a string of policy incentives, including subsidies to rural residents buying vehicles. This poured cold water on buyers' interest and led to a prolonged market downturn. But recently, speculation abounds that the government may restart the subsidy program.

An increasing number of global auto part giants are building plants in China, allowing Chinese auto manufacturers to take advantage of their advanced components and better develop self-owned models.

But domestic companies have a lot of barriers to overcome, including insufficient brand awareness, talent shortfall, technological weakness and less reliable product quality. In 2011, many local firms suffered falling sales and shrinking profits while global giants like General Motors and Volkswagen maintained rapid growth and dominant market shares.

This is an edited excerpt from an article in Economy & Nation Weekly, a financial magazine published by Xinhua News Agency

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