Chinese auto industry no threat to West
China’s automotive industry is still many years — perhaps decades — away from posing a serious threat to Western automakers, says a Chineseborn economist teaching at the University of Windsor.
Despite all the “ scary stories” the North American auto industry is being fed these days, says Howard X. Lin, Chinese automakers are still hobbled by a variety of serious shortcomings they will have to overcome before they can compete internationally.
Not only is quality still a hazy concept in China, its automakers are too focussed on short- term profits to build formidable companies yet, Lin told a seminar at the university last week. China’s still- primitive infrastructure, schools, financial and legal systems will hamper the assembly, selling and export of Chinese- built cars for years to come, he predicts.
An associate professor at the Odette School of Business, Lin is a former newspaper editor in China and was once an economist at the Bank of China.
“The key issue is, how competitive their industry is,” Lin says. So far, very few of China’s dozens of automotive assemblers are even close to being competitive, he added.
“People always talk about the labour costs” in China, and the advantage the lower costs give producers there, Lin said. “But there is another part of the equation: technology. Do they have the technology?”
Lin argues they do not, yet. “They do not have the independent ability to design a whole new car.” The sophistication of the engines being produced in China “ is 20 years behind the rest of the industry” — and engine technology is a key battleground in the fight for market share everywhere else in the world.
With more than five million units produced last year, Chinese automotive production has already superceded that of Germany. “But the productivity is not there. The quality is not there.” Neither does motivation exist to raise quality, Lin said. “They are satisfied with making money.” In China, Lin said, quick profits trump all.
That focus on the short-term means China’s fast- growing automotive sector has already “ missed the golden opportunity to develop indigenous, intellectual capital.” That means the country will remain dependent on imported automotive technology for a long time, he suggested.
That reliance could condemn China to a prolonged period of being a “ contract manufacturing site” for offshore automakers, he said.
Education is also a problem, Lin said. While the Chinese revere education, they tend to gravitate to theoretical learning such as physics and economics, shunning the technical courses beloved by the kings of automotive knowledge, the Germans.
Consequently, the Chinese auto industry faces a severe shortage of people with hands- on skills, Lin said. “ The graduates are good on paper but they are not practical. There is no know- how.”
Other problems: The country’s 1,700 parts producers mostly operate on a small scale with small production runs and relatively high costs. Chinese auto assemblers already have an overcapacity problem, Lin said. The Chinese legal system is still “ not transparent,” which poses problems for foreign investors.
While all the major Western automotive companies have at least two jointventure plants building cars in China, most of the country’s auto manufacturers are small outfits, just as they were here during the early days of car-building in North America in the first years of the 20th century.
There are at least 71 auto companies in China that build fewer than 10,000 cars per year. Only 10 plants in the country build more than 100,000 vehicles per year, which is considered the minimum annual production run elsewhere in the world.
Meanwhile, most of the nation’s population outside the main cities remains illiterate, China is starved for natural resources, “ the roads are too scary to drive on,” and it will be “ a long time” before the infrastructure approaches North American standards, which will hamper car sales. Windsor Star