by Toffler



Old Cars in China

October 26, 2006, by TofflerN, category Business Climate, Knowledge and Experiences, Uncategorized

It’s very curious to look around Shanghai and marvel at the fact the cars are all old. Well to be accurate, the cars themselves aren’t actually very old. Since there weren’t many passenger cars in China before the 1970s or 1980s, there aren’t (m)any truly old cars. It’s just that the body styles are very old and the engineering is rather outdated. The body styles of cars here remind me of cars from the ’80s, with very square corners and box-like appearances. The interior/dashboard area is no newer–old radios with turn dials (unless the driver installed a new system). The only very new cars I’ve seen, I expect have been imported, such as a BMW convertible and a few Audis.

As I observed this, I thought to myself, why is this? (Can you tell I ask ‘why?’ a lot?) My reasoning is that car manufacturers don’t want to give away their newest designs. Let me back up and discuss some of the history of business in China. Prior to China’s accession to the WTO any business in China had to be part of a Joint-Venture (or a few other legal forms, but Wholly Foreign-Owned Enterprises were definitely not allowed). The government made these requirements so that during the partnerships the foreign company could transfer technology and expertise to the domestic partner. In doing so, the government hoped local companies would use the technology and knowledge to build up local expertise and eventually undercut the foreign companies. As foreign car manufacturers were trying desperately to get into China’s market they agreed to these terms. They received benefits as well: low-cost labor and knowledge of and distribution in the domestic market. However, knowing the risks, foreign car makers wrote a provision into the contract that said their local partner (in the case of VW and GM, Shanghai Automotive Corp (SAIC)) couldn’t launch its own brand within a certain period of time. (I believe the period has elapsed and SAIC plans to launch its own brand within the next 6-12months). Now, my guess is, to further protect their interests, foreign car manufacturers decided to build outdated models of cars here. So that the local partner wouldn’t rip off the newest, most advanced technology, reverse engineer it, manufacturer it, and sell it for less on the global market, the foreign car makers only brought old styles here that weren’t being sold in any developed countries anymore. This seems like a genius plan to me. ‘Let’s give them engine technology and body styles that are from the 1980s and it will still seem fantastic for the poor, backward Chinese, while protecting our newest international models.’ It would not surprise me if some manager in those foreign car companies thought exactly that. It is my understanding, though, that the foreign car companies did fix defects that were in the originally released cars from the 1980s before they brought the technology to China; this way they would not be subject to any liabilities resulting from design defects.

Now the situation gets tricky. There is new legislation that has emissions standards set at a level stricter than those in the US (though, to my understanding, not quite as strict as the EU). You’ve got to wonder, is the government finally starting to care about the environment and the pollution? Or is this a legislative attempt to get more advanced technology from the foreign car companies just as the domestic companies plan to launch their own brands and sell on the international market? I would be curious to know how the foreign car brands are reacting and what they will do. Will they bring in newer body styles as well as more advanced engine technologies when they lower emissions? Or will they make only the most minor modifications to lower emissions?

So, what do you think ?