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Impact of China’s Entry into WTO on Automobile Industry and Selection for Development Path
Feng Fei
China’s auto industry is in a very crucial stage. The privatization of car consumption is taking shape, and the development of a large market for private cars is beginning to kick off. At the same time, auto industry is likely to become a pillar industry under the new situation, offering sustainable motivation for economic growth during the 10th Five-Year Plan and even a longer period of time. After China’s entry into WTO, the auto industry, which has been in an obviously unfavorable position, will face lots of challenges and external pressure from policy adjustment. Against this backdrop, a proper policy adjustment will turn unfavorable situation to a favorable situation and help the country achieve the long-term goal of economic growth, otherwise China would become the market for developed countries to sell their products, and the country’s interests would be damaged. Therefore, it is extremely important to select a correct development path for China’s auto industry against the background of the country’s WTO membership.
I. The characteristics and development trend of international automobile industry
In the last 10 years of the 20th century, under the pressure of a maturated traditional market, surplus production capacity and intensified technological competition, the international auto industry had experienced two major changes: First, the globalization of automobile industry had made obvious progress. Second, with association and merger of transnational companies, oligopoly had taken shape in the global auto market.
The basic characteristics of the industry’s globalization are: the major automobile makers have gone beyond a country’s geographical border in implementing their competition strategy and resource allocation; re-allocation of resources is made in the whole world, and the activities in industrial chains are not completed in the framework of a single country, but carried out on the global platform; transnational companies distribute the functions of investment, R & D, production, purchase and sales to the regions which best suit their development (in terms of resource and cost advantages) so as to lower cost, pursue best resource allocation efficiency and adapt to different conditions in different areas and market demand. All these are aimed at raising their competitiveness and seeking competitive advantages.
Globalization has brought about three major changes in the automobile industry:
First, globalization has changed the competition pattern. Globalized operation has become a necessary condition for the existence and development of auto manufacturers. Whoever continues to play the role of a regional manufacturer but only operates in a single country will face crisis for existence in a new situation.
Second, globalization has led to the restructuring of industrial work division. One of the most important changes in the organization of auto industry is that it has abandoned the development pattern in which entire-car makers and auto part enterprises are organized into a vertical link, while component making is located according to geographical scopes. The regionalization of auto part industry has been replaced by internationalization. Based on professional division, auto part enterprises serve the entire-car makers of the same type in the whole world.
Third, global work division has led to the globalized characteristics of auto products. Entire-car manufacturers purchase parts worldwide and the internationalization of auto part industry has blurred the idea of “national characteristics” and made cars typically international products.
Globalization of auto industry has boosted association and merger. In 1998 alone, 618 cases of merger and acquisition occurred in this industry, involving a total trade volume of USD 80.6 billion. The merger of Daimler-Benz with Chrysler involved USD 49.5 billion. This case triggered off a series of similar association and merger between transnational companies. These occurrences are actually part of the globalization strategy of transnational companies and a result of its implementation.
Through acquisition, cross-holding and participation, transnational companies have basically formed six transnational groups: General Motors-Fiat-Susuki-Fuji Heavy Industries-Isuzu, Ford-Mazda-Volvo-Daewoo, DaimlerChrysler-Mitsubishi-Hyundai, Toyota-Daihatsu-Kiro, and Volkswagan-Scania, Renault-Nissan-Samsung. These groups each turn out more than 4.5 million vehicles. In 1999, their total output was 46.29 million cars, accounting for 84.6% of the world’s total.
Table: Concentration of the world’s auto industry
|
Year |
North America |
Europe |
Asia |
Total |
|
1964 |
5 |
37 |
10 |
52 |
|
1980 |
4 |
19 |
7 |
30 |
|
2000 |
2 |
6 |
2 |
10 |
The development trend shows that there will be only five to six transnational entire-car manufacturing companies, which will form the so-called “4 million cars clubs”. Other non-club members can hardly survive. Some insiders also predict that by 2002, there will only be 25 auto part suppliers in the world with at least USD 7 billion in sales volume. Other suppliers can only serve as regional strategic partners of the global suppliers.
A key conclusion:
Against the background of economic globalization, it is impossible to build up a complete and competitive auto industry in any single country.
This conclusion is also applicable to both the developed and developing countries, regardless of the size of market. Many developing countries have given up the import-substitution strategy. Some Asian countries have set the target of building themselves into a regional production base for transnational companies. They have particularly eyed the Chinese mainland as the target market, thus exerting huge immediate pressure on China’s auto industry.
II. The impact of China’s entry into WTO on national auto industry
The long-term policy of high protection and barring domestic competition has kept China’s 40-year-old auto industry still at the stage of “infant industry’’ with an obvious gap from the international level. According to the sino-US agreement, the country’s auto industry will face direct impact from the following aspects.
First, after the tariff and non-tariff measures are adjusted, a large number of automobiles will be imported. In the year of WTO entry (without transitional period), the import quota for auto products will be USD 6.3 billion. Later, while the entire-car’s tariff decreases annually by 15%, the quota will grow annually by 15%. If the import of auto parts in 2001 is worth USD 2 billion, entire-car import license will be granted for USD 4.3 billion, which is equivalent to an import of 200,000 to 300,000 entire cars.
Second, the implementation of trade-related investment agreement will shake the current automobile development pattern. As this agreement requires that WTO members should not set localization proportion or compel foreign parties to transfer technologies, China’s current policy of building a complete automobile industry by localization is hard to continue.
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