Academic journal article China: An International Journal

Why Are There So Many Automobile Manufacturers in China?

Academic journal article China: An International Journal

Why Are There So Many Automobile Manufacturers in China?

Article excerpt

INTRODUCTION

The proliferation of automobile manufacturers has always been regarded by the Chinese government as a problem that needs to be solved by all means. In 1982, the chairman of the China Automobile Industry Corporation, a governmental body created in that year to supervise the state-owned automobile manufacturers, declared in his inaugural address that the corporation would "put an end to the history of scattered, duplicative, and small-scale production of the automobile industry". Notwithstanding the efforts made by the corporation and subsequent administrative bodies during the following decade, the industrial policy for the automobile industry promulgated in 1994 had to state that "the purpose of this policy is to change the current structure of the industry, which is characterised by the dispersion in investment, small size of individual production facilities, and the backwardness of products". To achieve this goal, the policy declared that "the government will promote the concentration of investment and the reorganisation of the industry, and solve the problem of too many enterprises and factories, dispersed investment, confusion in the approval of projects, duplication in the introduction of low-level products, and the slowness of the construction of government-designated plants and slow advancements in localisation". In short, the policy concluded that the industry was "dispersed, confused, low, and slow".

Unfortunately, however, the Chinese government had to reiterate the same problem in the new version of the automobile industrial policy promulgated in 2003 and declare that "we should push forward the adjustment and reorganisation of the industrial structure, expand the scale and improve the efficiency of enterprises, and raise the concentration rate of the industry". Even the latest version of the automobile industrial policy, namely the Adjustment and Promotion Plan for the Automobile Industry, issued in March 2009, pointed out the existence of "irrational industrial structure" and the necessity "to promote mergers and reorganisations of enterprises, and to raise the concentration rate of the industry".

Some Western scholars who studied Chinese industrial groups in the 1990s were sympathetic to the Chinese government's ambition to reorganise the dispersed state-owned enterprises into large competitive firms. (1) But considering the fact that the industrial structure still remains "irrational" after more than 25 years of the government's efforts to reorganise the industry, one comes to question the correctness of the judgement that the industrial structure has been "irrational". Is there not a possibility that there are some rational or economic reasons for the persistence of the dispersed industrial structure? This article explores this hypothetical possibility by taking a close look at the marginal enterprises in China's automobile industry.

Before moving on to the analysis, however, we shall examine how the "irrational" structure has been explained in the literature. Ma Ziwen raises three reasons: first, the demand for automobiles has exceeded supply for a long period; second, the government has failed to create a sound environment and to enforce industrial policy, giving way to short-sighted investment behaviour by local governments; third, decentralisation of decision-making power on investment. (2) Chen and Sheng put the blame on the government which "did not consider much about scale economy". (3) Both of these authors believe that the dispersed industrial structure is the result of irrational behaviour by the central and local governments. Some other authors, however, provide more rational reasons for the proliferation. Li Hong points out that entry to the automobile industry has been easy because the incumbent state-owned manufacturers have failed to create entry barriers by their technological supremacy. (4) He also points out that the vast area of China and protectionism by some local governments makes it possible for inferior manufacturers to survive in their local markets. …

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