How did China overtake American and European car companies?

 How did China overtake American and European car companies?

The simple answer is that domestically produced vehicles in China have continued to improve.

China, like Korea, started exporting cars ahead of time but failed miserably, says Gregory Noble. They did not have the necessary quality. There were common scenes on the internet that Chinese vehicles were being destroyed like tin cans in crash tests.

But then after five, ten years, the performance of Chinese cars improved in the crash test. During this period, Chinese companies learned a lot from their foreign partners.

According to Sam Fiorani, an expert on the auto sector, the aim of the joint venture was to improve the Chinese companies so that they could beat their own partners.

Chinese investors invested in large cross-border car companies to acquire major global car brands. For example, in 2005, Nanjing Automobile Group bought the well-known British company MG.

China invested in new technology, such as electric cars, to challenge traditional car companies and had an edge thanks to its expertise in the electronics industry. The Chinese government has invested billions of dollars in the industry through electric car subsidies and tax breaks.

According to Gregory Nobel, China felt that it would be difficult to compete with Western and Japanese auto companies in traditional vehicles, so it focused on electric vehicles, which had not been given much attention in the past. It supported research into electric vehicles under the scheme and thereby made parts available locally.

Gregory Nobel says that China has the lead in battery manufacturing. There is a perception in the US that this happened thanks to subsidies, cheap labor and lax environmental controls. It is possible that these factors will be related to the past, but this cannot ignore China's technological prowess.

Apart from batteries and motors, China has expertise in smartphones and software. Gregory Nobel cites the example of German company Volkswagen now seeking help from Chinese companies to solve software problems in its electric cars.                                                                                              

It is also worth noting that Chinese smartphone companies such as Xiaomi and Huawei have also joined the electric car race. These are some new companies that don't have the burden of the past. They don't have old factories, so they can move faster.

On the contrary, according to Gregory Nobel, "The software of American and European cars is old, they cannot use modern chips."

Another aspect of Chinese dominance in the automobile industry is speed. According to China Auto Review, while it usually takes two to three years for a car company to bring out a new model of its current vehicle, in China a new car model is introduced in 12 months, that too at a lower price.

But all this is also related to global politics and regional importance. Michael Don says that in 2017, the US company GM signed a contract to supply South Korea with an anti-missile defense system, which China did not like. Since then, the market share of the Big Three and Korean car companies in China has decreased.

China has gradually opened up the market by abolishing joint venture rules, which have made it difficult for foreign companies. Tesla is the only US company to enter China without a joint venture after the easing of trade policies. It is estimated that every second Tesla car sold in the world is manufactured in China.

According to Michael Dunn, it looks like 'Ford, GM, Hyundai, Kia and Nissan will have to pull out of China entirely in the next five years.'

"China invites the best companies in the world to work in its country, quickly learns everything from these companies and there comes a time when it shows them the exit door."

Auto policy reforms in China that boosted car sales into the billions

According to the book 'Sailing to China', China introduced far-sighted reforms in the auto sector during the 80s and 90s.

In 1994, China's planners enacted a new auto policy that allowed foreign auto companies to own 50 percent of a joint venture. Later, foreign auto companies were urged to make vehicles of global standards with the help of locally available parts.

In 1997, the world's largest auto company General Motors (GM) entered China and partnered with SAIC.

With the easing of China's economic policies, the purchase and sale of vehicles began to increase. A 2004 report by China Daily acknowledged that the 'bicycle kingdom' of China's emerging middle class was abandoning bicycles for transportation.

In a CNBC report, Professor Gregory Noble of the University of Tokyo points out that the demand for cars in China tripled during the 1990s. At the turn of the new century, China entered the World Trade Organization. This further increased the confidence of foreign companies.

According to the book "Selling to China", it can be estimated from the fact that in the year 2000, 1 million vehicles were sold in China, which increased to 10 million annually by 2009.

China, Ford, image source GETTY IMAGES

According to the American company GM's own data, its annual revenue in China from 2012 to 2018 was two billion dollars.

Auto sector expert Michael Dunn told CNBC that GM's then-CEO told him, "Here in China, we're making more money than God." Chinese citizens love our vehicles. It seemed that the Big 3 (of Detroit, USA) GM, Ford and Jeep would always have the upper hand in China.

But then the situation started to change.

In China, the revenue of other foreign car companies, including GM, continued to decline and this was due to the production of vehicles at the local level.

Now the huge demand for cars in the Chinese market was being met by local production.

Michael Dunn said that in the current scenario in China, American car companies are facing such a decline that "GM's sales are down 50%, Ford's sales are down 60%." Jeep has gone bankrupt in China and has had to leave.

"During the last five, six years, the Big Three in China have suffered disastrous consequences."