China demands foreign car makers hand over their tech secret

Posted by MiriCommunity.net, December 7, 2010

China, who is now the world's largest exporter after overtaking the former no.1 Germany last year ($1.2 trillion Chinese exports vs German $1.1 trillion exports) begins to dominate global industries by industries from apparel to electronics to sex toys (indeed... China exports 70% of the world's adult sex toys).


But one of the most important industries China fails to lead is the automotive export industry.
Cars produced in China cannot match their American and Japanese counterparts in quality. Chinese cars, estimated to be 5-10 yearsbehind in technologies, simply cannot compete in global car exports.

The Chinese government feels that this is very embarrassing. It wants to change this...

Therefore, China has enacted a 10 year automotive advancement plan to make China the top car exporter in the world.

Chinese automakers have bought out car technologies from Volvo, Saab and have them transferred to Beijing.

In one case, an employee at Ford was found to forward 4,000 documents containing Ford car tech secrets to Beijing in 2006, on another case, two employees of General Motors (GM) was found to have forwarded thousand pages of GM car tech secrets to Beijing in 2005.

Those tech secrets was distributed to major Chinese automakers, to enhance their car factory production process and technical integration.

Obtaining those tech secrets indeed pays well, within just a few years, China overtakes Japan to become the world's largest car manufacturer in 2009 (13.79 million cars produced in China vs 7.93 million in Japan vs 5.7 million in the USA in 2009)

But the achievement is only in quantitative side, the qualitative parts remain weak. The world is still doubtful on the quality of China-produced cars. Chinese cars remain cater only to domestic needs, not exports.

This is reflected in the stats, that Asia's four largest car exporters are Japan, South Korea, Thailand and India in that respective rank, with India exporting 1.5 million cars in 2009. China trailed badly with only 380,000 cars exported.

China is upset by this, it wants to be a leading car exporter. So....

China demands foreign automakers divulge car tech secrets in exchange for market access

China now has the world's largest car market share after overtaking the US last year (13.5 million cars sold in China vs 10.4 million for the US in 2009) Many of the world's largest auto makers deem China as their most important and most profitable market, in wake of the global financial crisis, an indispensable market. While the US and European consumers retreat as result of the crisis, in China people are lining up to buy cars.

The Chinese government decided to utilize that advantage.

China's Ministry of Industry and Information mulls plans that could force foreign auto makers to hand over cutting-edge auto technologies to Chinese companies in exchange for access to the nation's huge market.

Under the ministry's proposed plan, foreign auto makers must form joint ventures with Chinese companies if the foreigners decide to sell cars in China, with the car production process also to be done in China. Given the size of China's market and the costs involved in importing those components, most foreign companies would indeed feel it necessary to produce those components in China.

The plan would cap foreign ownership in the ventures at 49%, giving majority ownership and effective control to the Chinese partners, the foreign executives say.

It doesn't matter who the foreign automakers seek to partner with, as long as 51% is owned by a local citizen of China (and could be anyone from any ethnic groups / races in China) and the majority owner is a local company based in China.

As the majority stakeholder of the joint venture, it means the Chinese companies might have complete access to the trade secrets and technologies. It essentially means foreign companies will hand over their technology to their Chinese partners.

The plan could allow China to leapfrog Japan, U.S. and other nations in the race to develop advanced auto technologies and make first-world cars for exports.

Automakers reaction

U.S. politician Rep. John Dingell has urged Beijing to stop such policy. The Democratic representative from Michigan sent a letter to China's ambassador to the U.S.

"This violates the sanctity of the intellectual property laws we hold so dear in the United States and amounts, in my estimation, to a violation of China's obligations as a member of the World Trade Organization," the Congressman said in the letter.

"I urge China to reconsider these plans and instead commit to meaningful cooperation with the United States to remedy existing problems in our countries' trade relations," Dingell wrote.

The Journal says Toyota has delayed bringing the Prius - its cutting-edge hybrid car to China until the government clarifies its policy on technology transfer.

The foreign car executives are joining a chorus of companies criticizing China's industrial policies. Business people and government officials say Beijing's so-called indigenous-innovation efforts discriminate against them and are aimed at gaining control of foreign intellectual property.

The plan is “tantamount to China strong-arming foreign auto makers to give up battery, electric-motor, and control technology in exchange for market access,” a senior executive at one unnamed foreign car maker told the Journal. “We don’t like it.”


As part of the country's 12th five-year plan (2011--2015), Beijing has pledged that it will do whatever it takes to help the Chinese car industry take the lead in global market. The Chinese government has allocated $15 billion for this purpose, with the amount of money expected to grow exponentially over years.

"Right now American engineers are competitive with those from Japan, Korea, and Europe," says
Bill Russo, a senior adviser at Booz & Co. in Beijing who covers the car industry. "They are generally superior to China's engineers when it comes to auto technologies."

"But the Chinese industries have historically been fast in learning and adapting. With the new policy, five years is all it takes for China to manufacture a world-class car fit for export, and another five years for it to join the world's premium cars exporter league."

Indeed China has a lots of leverage, it is now the world largest market for cars, a market expected to grow 45% this year followed by 30% next year. By 2012, the Chinese car market would double that of USA and 20 times that of India's. Most analysts agreed that no automaker can resist such temptation, and it is only a matter of time before they carved it to the demand.

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