Geographic barriers hindering China's auto industry

Attracted by the high speed growth of China's auto market and relaxed policy of the industry, more and more provinces and cities in China have begun to make autos. Multinational giants are extending their business around the country. But geographically their operation is characterized with a north-south parallel. In this case, the prospect of a so-called oriental Detroit seems not possible.

All the multinational auto giants have their production lines based both in the north and south of the country. There is Toyota in Guangzhou and Tianjin. Volkswagen has joint ventures in Shanghai and Changchun. And Shanghai, Shandong and Liaoning all turn out GM autos.

This situation is largely thanks to the policy which entitles them to have two partners. The principle of not putting all eggs in one basket, the pursuit of maximum profits and the benefits of trade-off between the two Chinese partners and themselves, all underlie their strategy of having manufacturing bases both in the south and the north.

However, this arrangement has significant adverse effects either to the development of China's auto industry for a long run or to these multinationals.

When Dr. Folker WeiBgerber, director of Volkswagen China said consolidation of the two arms in the south and north was a too difficult task for Volkswagen to accomplish, he apparently referred to the geographic segmentation in the auto market in China.

Any Chinese partner of these multinational, such as Shanghai Automobile, First Automobile and Dongfeng, is a local enterprise which contributes much to the tax revenue, employment and GDP of the local economy where they are in. This adds to the difficulty in cross-regional integration. And it is true that a multinational cannot tackle it.

Auto industry is regarded as a "cross-border" economy in the world market. However, it encounters geographic barriers in China. Some multinationals are complaining about the intervention from some local governments into their cooperation with their local partners.

All of this will hinder the growth of China's auto industry.

By People's Daily Online