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Carmakers must develop own technologies
By Wang Wu (China Business Weekly)
Updated: 2004-07-19 15:34

Fortune magazine last week published its Global 500 list. Shanghai Automobile Industry Corp (SAIC) made the list. That marked the first time a Chinese automaker had made it into the prestigious grouping.

The news triggered much debate among analysts about the event's significance. Some hailed it as an "exciting, symbolic event" that "indicated China's car manufacturing had reached a certain level in production scale and technology." Others dismissed it as an "embarrassment" because most of SAIC's vehicles, much like other major automakers in China, are merely "foreign brands." They argued China's carmakers lack "self-developed core technologies."

Both arguments are unfair. Analysts should have a more objective attitude when commenting on this matter.

Using the word "embarrassment" to describe SAIC's accomplishment is over the top. SAIC's inclusion on the list is a reflection of the convincing growth of China's automobile industry. Nobody can take that away from SAIC. However, the comments about the lack of "self-developed core technologies" warrant serious consideration.

China's major automakers, who mainly produce vehicles under the brands of world auto giants, such as Volkswagen and Citroen, pledged to develop independent technologies when they launched joint ventures with their foreign counterparts more than 10 years ago. However, they have done little to honour their commitments. They have, in essence, reduced themselves to processing foreign vehicles with key components from abroad.

Why? They did not have time to develop "core technologies." Why? They were too busy counting their profits from the sales of cars they produced with their foreign partners. Sales have been so brisk in recent years that these automakers had no reason to feel the need to develop new technologies.

Danger is lurking, however. After having savoured the initial excitement arising from the news "China has entered the era of automobile consumption," Chinese car consumers have become more cool-headed -- and more hard-headed. In other words, Chinese who were eager to own a vehicle, and who could afford one, have bought cars manufactured by the Sino-foreign joint ventures; but the vast majority hope to buy less-expensive, more-practical cars.

The sluggish vehicle market in the past two months proves most would-be buyers are adopting a wait-and-see attitude.

China's major automakers, however, seem to be looking off in the other direction. They are introducing new foreign cars, which are more fashionable -- and more expensive.

Instead, they should seriously analyse consumers' needs and wants, and then develop technologies that will help them meet the requirements, which no doubt will be based on China's practical conditions.

In the first place, China is coping with a shortage of energy. Petrol prices will keep rising. Oil conservation, therefore, is definitely a top concern.

In the second place, the worsening traffic congestion and Chinese authorities' zero-tolerance on speeding will prompt a growing number of consumers to consider buying compact cars. Cars with more powerful engines will become a less-favourable option..

Third, as people become more aware about the effects of air pollution, authorities will enforce stricter emission standards.

To produce new, inexpensive vehicles that meet these requirements, China's car manufacturers must develop their own core technologies. Continuing to produce foreign brands (with foreign technologies) will make it impossible for Chinese manufacturers to reduce vehicle prices to levels acceptable with average consumers.

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