Friday, Jul 28, 2017, 8:46 PM CST – China


Chinese Cars


Can Chinese automakers step their game up before foreign and joint-venture brands solidify their dominance?

A Chinese-made Hover car participates in the Dakar Rally, Argentina, January 5, 2014 Photo by Victor R. Caivano

Wang Chuanfu, president of BYD, does chin-ups on a BYD-made electric bus during the governor of California Jerry Brown’s visit to BYD headquarters in Shenzhen, April 16, 2013 Photo by Vincent Yu

A Chinese worker assembles a car on the Geely Motors assembly line in Cixi, Zhejiang Province, June 21, 2012 Photo by Peter PARKS

On March 23, (ATHM), China’s most popular auto industry website, announced that it would no longer be using the somewhat pejorative term “domestic” cars, preferring instead “Chinese” cars, striking a chord with car manufacturers and industry experts.

“The term ‘domestic’ has led Chinese customers to [feel compelled to] buy Chinese cars for the good of the country, but this is not how the market economy works. The new term will place Chinese cars on the same footing as foreign ones, which in my eyes, will be helpful to the development of Chinese cars,” Li Xiang, ATHM’s president, told NewsChina.

While China is now the world’s biggest car market, Chinese-branded cars have seen a drop in their market share over the past three years. Official data show that the Chinese market saw 2.73 million domestic-branded cars sold in 2014, a 16 percent decline since 2013. According to some analysts, this trend will continue in 2015.

The phenomenon is believed to be due to the rapid expansion of foreign and joint-venture auto brands in the Chinese market, particularly their entry into the low-end market – previously the dominion of Chinese brands – and also to Chinese customers’ deep distrust of domestically-branded cars.

“We used to connect domestic brands to patriotism or nationalism, but in reality, few customers choose a product based on place of origin rather than quality. It is time for the Chinese cars to fully join the market competition,” said Li Xiang.

Domestic vs. Foreign

People’s worries about the development of Chinese cars actually originate from over 10 years ago, when the Chinese car market boomed as foreign and joint-invested brands entered the market, the country’s own car manufacturers were still in their infancy.

Although Chinese car makers, particularly State-owned ones, made huge profits by cooperating with foreign investors, they gained little in terms of technical improvement, particularly in fundamental technology such as engines and gearboxes.

“Most Chinese engines were attempted copies of foreign ones, and often broke down, made noise or vibrated… if we cannot make a good engine, how can we make a good car?” wrote Zheng Shiyi and Ma Bing from Southwest Jiaotong University in a 2013 paper on the tech gap between foreign and domestic cars.

“China hoped to exchange market access for technology, but failed. The reduced market share has proven that Chinese cars have not yet been acknowledged,” Wu Song, general manager of Guangzhou Automobile Group, told NewsChina.

Many analysts have criticized Chinese car makers, especially State-owned ones, for sacrificing technological development for short-term financial gains, and have warned that the expansion of joint-venture brands is squeezing Chinese cars out of the market. The “Shanghai” brand, an iconic Chinese car in the 1980s, for example, has been out of production for two decades since its maker, SAIC Motor, began working with Volkswagen to build a Chinese version of the German brand’s Santana model. After incorporating Audi technology, Hongqi, perhaps the most storied Chinese car brand, first began producing cars that heavily resembled Lincolns, then Toyotas.

While several private Chinese automakers have struggled on by making low-end cars, dominating that section of the market with prices much lower than those of their foreign counterparts, their poor technology and reliability, according to Wu Song, have given them a bad reputation.

“Having dominated the Chinese market for years, foreign cars have created a brand-oriented culture in the Chinese market, where customers will prefer a foreign-branded car even though it is of similar or lower quality than a Chinese one,” said Wu.

Li Xiang, ATHM’s president, agrees. “As foreign cars enter the low-end market, Chinese cars can no longer keep supplying their customers with low-price knockoffs. Although some of them have launched several high-end products which I believe are of better quality than foreign ones, they have failed to convince customers,” Li said.

A typical example is the Roewe, a model in the SAIC Motor range. Though based on a foreign car, analysts have attributed its poor sales to its transparently Chinese origins. Similarly, poor sales forced Riich, a car aimed at the luxury market by domestic automaker Chery, to shutter its showrooms and stop production not long after opening.

According to a 2013 report on the car industry by the Chinese Academy of Social Sciences, China’s domestically-made cars only account for 5 percent of the total profit made in the Chinese car market, with the rest flowing to foreign and joint-venture brand cars. In 2014, none of the top five highest selling car brands in China were Chinese. 

For Chinese analysts, this is a particularly sore point – so much so that some have begun referring to foreign car brands as the “Eight-Power Alliance,” a Chinese term used to describe the foreign powers who presided over the dismantling of the Qing Empire in the 1900s. In recent years, there has been much hand-wringing over China’s inability to produce a market-leading “national car” like Germany’s Volkswagen Beetle or Italy’s Fiat 500.

“Generally speaking, a ‘national car’ should be economical, high-quality and hold a significant market share. It guides the development of the car industry and represents citizens’ confidence in the country’s manufacturing. Judging by these criteria, no Chinese car is currently worthy of such a title,” Tang Yuejin, a deputy PR director for SAIC Motor, told NewsChina.

“It means that neither China’s car manufacturers nor its consumers have entered a ‘mature’ or ‘developed’ phase like Germany’s,” he added.

Way Out

10 years ago, Chinese experts and car makers still disputed whether or not the Chinese car industry could survive and develop based solely on foreign technology – now, many analysts agree, it is becoming clear that these concerns were legitimate.

“The Chinese car industry cannot get a toehold worldwide until Chinese car makers free themselves from reliance on foreign technology and shift to self-development,” Wei Jianjun, president of Great Wall Motors, an auto maker based in Hebei Province, told NewsChina.

At Audi’s annual conference this March, the organizer issued guests with memory cards manufactured using 3D printing technology, a symbol of the company’s technological expertise. This small move triggered debate in the Chinese car industry, with many people complaining that foreign companies are spending their profits from the Chinese market on further research and development, broadening the technological gap with their Chinese counterparts.

“There is not much time left for us. If we fail to keep up with foreign competitors in this fast-developing market, we will lag farther behind when the market cools down five years down the line,” Wang Xiaoqiu, a passenger car product manager at SAIC Motor, said at a product release event in March.

During this year’s Two Sessions, Premier Li Keqiang publicized a 10-year strategy for the manufacturing industry, encouraging Chinese enterprises to focus on technological development, which many see as the best way for the country’s automakers to improve their businesses.

“As a big manufacturing industry, automobiles should and have to be a pillar industry, since they will drive the development of many upstream and downstream industries,” Tang Yuejin, SAIC Motor’s deputy PR director, told NewsChina.

“Given that the car industry is the cause of certain societal problems, such as traffic jams and pollution, Chinese car makers can fight on by tackling those problems,” he added.

The Chinese government has been guiding Chinese car makers to take this approach, providing subsidies to encourage things like clean-energy cars, but with limited success. Critics have complained that car makers have either misused funds or taken clean-energy cars to market with underdeveloped technology.

Due to a lack of charging stations, one electric car model manufactured by BYD, a leading Chinese car maker, for example, was a complete flop on the Chinese market, particularly in key big-city markets where charging stations are difficult to install.

“The government should have subsidized the construction of charging stations. When you give someone rice and pork, you have to give them oil, firewood and a stove as well,” said Li Xiang.

According to Li, catering to customer demand is the only way to regain market share. “Besides appearance, gas consumption and performance, a Chinese car maker should consider how to satisfy Chinese customers in the Chinese traffic environment, such as raising efficiency in a heavily-populated city,” he told NewsChina.

“It is not wise to blindly follow foreign companies. We have to come back to the market and our customers,” he added.

According to Chinese media reports, China will be home to over 600 types of vehicles by 2016 which Li believed both a challenge and a chance for the Chinese makers. “As the market slows down, the gap between Chinese and foreign cars solidifies. But this decreased market share will in turn push Chinese manufacturers to concentrate their efforts on self-improvement,” he said.

The Trumpchi GS4, an SUV model made by Guangzhou Automobile Group, is a good example. Despite the sluggish market, the Trumpchi’s sales grew by 41 percent last year. In March, Yahoo Finance awarded the Trumpchi its “Innovation for the Future” prize, claiming that the brand was of the same performance and quality as its foreign competitors in the same price range.

“In order to seize a bigger share of the low-end market, many foreign brands have degraded the specifications of their cars to be sold in the Chinese market, including safety equipment, but we do the opposite. It is a good chance for [Chinese car makers] to change the image of low price and low quality,” the company’s president Wu Song told NewsChina.

“It will take a long time to rebuild our image, but we have to do so. If we do not seize this opportunity, the Chinese car industry is as good as over, and this might have a very negative impact on the national economy,” he added. 


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