The Chinese Car Industry
China's very first road vehicle, the 'Jiefang' or liberation truck (which you can still see in large numbers), rolled out of the Changchun No 1 Automotive Works in 1956, and with this China's motor industry started. By contrast, in Russia and most of the old Communist Bloc countries, the motor industry was well established before the Second World War. The years between 1956 and 1965 were the real founding period of the industry in China, and by the end of this era the sector had a capacity to produce 60,000 vehicles a year, ranged across ten basic models.
Another feature of the industry was that up until the late 80s and early 90s, production was exclusively limited to very large cars for Government officials. By contrast, even in the USSR, there has always been production of a range of cars from the enormous limousines (the ZIL, ZIM & ZIS), to smaller, cheaper (and much nastier) offerings which ordinary people could in theory buy, like the Pobeda and Moskvich. In East Germany the automotive evolutionary ladder went down an extra rung with awful Trabant! But in China this segment of the market did not exist.
Since the 1950s, China's automobile industry has gone through three distinct phases and is due to enter a fourth. The first phase was a time of Soviet inspired vehicles, which was followed by a period of European inspiration. More recently, China has been designing and engineering its own styles. The fourth phase, yet to come, will be when China becomes one of the major players in the global car market.
The first of the vast post-war Soviet limousines, the ZIS, was little more than a direct copy of the American pre-war Packard, with one of the last incarnations of a 'straight 8' engine. Then came the ZIM with an American inspired V8, and in turn the ZIL, a much more modem looking car with the early 1960s style of fins and chrome. Of the two cars manufactured in China in those early years, the Hongqi CA770 was a close imitation of the ZIL. Equipped with a 5.7 litre V8 delivering 220 bhp, and a two speed automatic gearbox, this 2.5 tonne monster could, in the hands of someone brave enough, achieve speeds of approaching 100mph. These leviathans are still produced in small numbers for top officials, often furnished inside with purple seats with gold borders!
The first car actually manufactured in China was the Shanghai SH 760. The flagship model, called Fenghuang, was produced in Shanghai in 1958. The inspiration is believed to have been a mixture of the Mercedes Benz 220 S of 1957 and Soviet models of the same era, but with an American flavour. In 1964 the model was renamed SH760, and with various cosmetic coachwork changes, survived right up until 1991. With a 2.2 litre straight six engine, developing 90 bhp, and a manual 4-speed gearbox, the SH760 was good for 85mph. They were turned out from the Shanghai works at the rate of up to 6,000 in the peak year of production, 1984, but are quite rare now. You see abandoned SH760's along the roadside, rusting monuments to the early days of the Chinese car industry - there are no attempts to preserve or restore any of these old vehicles, unlike the Chang Jiang JB750 motorcycle (a copy of the 1950's BMW R71 bike) which now has quite a cult following in Beijing. Complete with compulsory sidecar, groups of enthusiasts tour the streets on their Chang Jiangs, and many specialist restorers have sprung up to keep these classics on the road, the Chinese equivalent of the Hairley Davidson or Honda Goldwing movements in the U.K.
Another significant vehicle from the Soviet inspired days is the Beijing BJ212, a direct copy initially of the Russian UAZ 469. With a 2.5 litre 4-cylinder engine delivering 71 bhp, this rugged vehicle was initially for army use. This basic vehicle has evolved over nearly 40 years and is still produced as the BJ2020.
The next phase in China's short automobile history starts in 1985 when Volkswagen signed a deal with SAIC, which had been formed by the merging of most of the local production enterprises in Shanghai, including the historic Shanghai Automobile Plant which had turned out the SH760 for so many years. In 1991, in order to further develop the Volkswagen vehicles, SAIC ceased production of the old SH760, thereby severing the main link with the old Soviet days.
The two major manufacturers of these European based vehicles were Shanghai Volkswagen Automotive Company Ltd (SVW) producing the Santana (or Passat as we in Europe knew it) and FAW-Volkswagen producing the Jetta and Audi 100, known now as the Hongqi CA7200. Between them they now dominate the market, with a combined market share of 56%. The Audi 100 has become the mainstay Government official's car replacing the old soviet and American inspired cars. The Santana 2000 has taken up the role played by the old Shanghai SH760. The Jetta is common as a taxi. Shanghai VW is 50% owned by VW, FAW-Volkswagen is 40% owned by VW/Audi. VW's success in China over the past 15 years has been phenomenal.
The real losers during this second phase of the industry were the Japanese. Although Honda has a very small presence, and one locally produced car is really a Diahatsu in disguise, they really have only a very small presence in the car market. In the late 80's early 90's their presence was more noticeable, but the success of VW and Audi in setting up such successful joint ventures has largely closed the door on them. Recently more efforts have been made to regain a foothold, and in August 2002 Toyota signed an agreement with FAW, China's biggest auto group and a collaborator with VW and Audi, to produce 30,000 compact cars annually at Tianjin Automotive Industry Corp (which recently merged with FAW). They also propose to build a derivative of the luxury Toyota Crown which would replace FAW's Red Flag luxury saloon.
The third phase of the industry started late 2000. At the Shenyang Gold-Cup Auto-Making Company in Liaoning Province the very first car to be entirely Chinese started to roll off the production line. Known as Zhonghua (meaning simply China!) it is being produced in two forms, a car and an estate/van. The only European legacy is that the design of the body was by Giugaro, but all mechanical parts, and the engine, are entirely of Chinese design and manufacture. The car is believed to match European standards of quality, essential to meet increasing competition from the WTO. The car costs around Y150,000 to Y200,000 and is aimed at the increasing demand for medium to high grade cars in the domestic market. Also launched in 2000, but not exactly 100% Chinese, was the Beijing Heroic. This was inspired by the Jeep Cherokee, a model previously produced under licence, but this new vehicle has been designed completely independently, although the engine is pure GM. It certainly looks a great improvement on the Beijing BJ2020, and certainly drives better.
A Chinese car factory in 1976.
Looking to the future, the car industry in China is seen as vitally important by the Government. Along with electronics, petrochemicals, machinery and construction, the automobile industry has been designated as one of the five 'pillar' industries.
In 1994 the Government carried out a comprehensive review of the industrial situation in China, and for each sector the state of industrialisation was analysed. The 'pillar' industries represented the third and final stage of industrialisation for the country. These industries are all expected to show a sharp response to improving incomes, show substantial scale economies, and have high potential for growth.
There are, of course, problems ahead for the Chinese motor industry. In the mid and late 1980s 120 manufacturers were established. Production of vehicles of all types increased from around half a million to 1.57 million by 1997. However, most of these manufacturers are too small to be efficient in the future. The top 13 companies produce 91% of the vehicles (VW alone has 56% of the car market) implying that the average output of the remaining 107 companies averages around 1300. The small manufacturers have capital investment per vehicle produced around three times that of the large players. The industry is therefore rather like the UK car industry between the two World Wars, full of very small manufacturers plus a few big players. With such strong state control over the industry, the links between industry and the financial sector, the changes which will follow the NWO agreement, and the desperate need to invest in expensive research to produce low emission vehicles, it is almost inevitable that the industry will concentrate strongly on a small number of major players, who will not only be major players in China but also major players on the global car scene.
There are still problems with component manufacturers. In the 1960's Mao Zedong launched the Third Front, a strategy designed to protect China's industry from foreign attack. Auto component manufacturers and vehicle assembly plants were moved to the interior. This caused great inefficiency, no economies of scale, and prevented sharing of technology. The legacy of this was one reason why domestic production could not meet demand by the 1980's, vehicle imports were first permitted, and VW entered the market. But the legacy of this situation still lives on and will take time to eradicate. Given that all domestic assemblers are required to source 80% of components domestically within eight years of production, getting domestic component sourcing efficient and of top quality is a must.
Another important WTO impact will be the requirement to drastically cut the import duties on imported cars, which currently are around 100%. The proposal is to reduce the duty to a maximum of 25% by 2006. This will inevitably increase competition on the local industry, so quality and value must increase if the domestic industry is to stand its ground. This will reinforce the pressure for rationalisation and concentration in the industry. In turn this will make China's domestic car industry increasingly competitive on the world stage. How long, I wonder, before we see Chinese cars imported into the UK?
On the subject of high import duties, on my last visit to Beijing in September 1 was being driven from the airport to my hotel when we passed a top-of-the-range new model Range Rover, this was just a few weeks after it had been launched in UK. I reflected on the fact that, in the LTK, this costs around £55,000. If I add 100% import duty, and maybe £2000 for shipping, here was a car costing its new owner Yl.34 million! There are some very rich car enthusiasts in Beijing!
© Copyright Society for Anglo-Chinese Understanding (SACU) 2003, reprinted from SACU's China in Focus magazine Issue 13, 2003
The views expressed in this article are those of the author and do not necessarily represent the view of SACU.
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