Drivers of Technological Change in the Chinese Automobile Industry: Implications for Energy and Environment

July 13, 2004 - 12:00pm
Bldg. 90
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During the 1990s, sales of new automobiles in China grew 18 percent annually, resulting in a doubling in the number of passenger vehicles on the road every four years. Since 2000, automotive production has grown even faster in China, culminating in a 60 percent growth rate in sales in 2003. Foreign technology has influenced the development of China's automobile sector since its inception, but foreign influence has been most pronounced during the last decade. All the major Chinese automobile manufacturers have now formed joint ventures with foreign companies, so the influence of foreign technology has been strong. In 1963, China produced a grand total of eleven cars. In 2002, with the auto market raging "like the burning fire in winter," (NBS 2002) Chinese auto companies collectively produced a million cars for the first time. In order to make this profound transformation, China had to acquire quickly the necessary knowledge and technological capabilities for automobile production. Starting all over again after the Cultural Revolution from practically nothing in the way of equipment and know-how, China was faced with a classic "make or buy" technology dilemma. Should it try to develop these capabilities internally or was China too far behind the world leaders for this ever to be feasible? What could China hope to obtain from foreign providers of technology? Historically, the Chinese government has been inconsistent regarding these questions. Based primarily on interviews, three case studies of technology transfer and technological acquisition are explored in depth to understand the drivers of technological change in the industry: Beijing Jeep, Shanghai GM, and Chang'An Ford. The main finding is that U.S. foreign direct investment in the automotive sector did not strongly contribute to improving Chinese technological capabilities because little knowledge was transferred along with the product. This is probably true for all of the Chinese joint ventures with foreign auto companies. In addition, automotive technologies that were transferred were not necessarily updated in tandem with updates made to equivalent foreign models. To the extent that learning did occur, it was mostly related to manufacturing processes, and in the automotive parts and components industry. Local content requirements strongly influenced the development of the parts and components industry. The Chinese firms appeared to undercut themselves in the joint venture negotiations, perhaps because they were not bolstered by stronger Chinese policy related to technology transfer and performance standards. Technologies that would substantially improve vehicle energy efficiency or reduce conventional air pollution have not been transferred to China. Chinese technological capabilities are still far behind in this realm, although the Ministry of Science and Technology has launched an ambitious (but misguided?) R&D program for cleaner vehicles.

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