1. According to some experts invited to attend Annual Forum of 50 Experts from China’s Auto Industry recently held by Sohu Auto, ten years after China’s accession to World Trade Organization (WTO), China’s auto industry did badly in spite of brilliant sales figure.

　　One of the core problems lie in incorrect joint venture model. China’s auto industry may turn out to be failure as long as joint venture model continues. Secondly, certain experts pointed out that there is no use for joint ventures launching their own brands. How do think about these two kinds of opinions?

　　It is true that China is unique (of all the signficant auto producing countries) in that it still requires foreign vehicle manufacturers to operate through joint ventures with Chinese companies and this has certainly shaped the structure of the industry, including competitive dynamics the development capabilities of local players and the strategies of foreign OEMs.

　　It is true to say that the major SOEs such as FAW, Dongfeng and SAIC have made slow progress in developing their own technologies and capabilites and have relied too much on their foregin JV partners. Joint venture structure is part of the explanation but it is also because of the culture and traditions of State Own Companies which are not conducive to innovaion and entrepreneurship.

　　In contrast, companies such as private Geely and Great Wall which have operated without JV partners have made more impressive progress. These private companies have been hungry for success and of course have more dynamic management.

　　Policy makers can choose to protect specific industries or deregulate and allow free competition. In China, government’s main objective in requiring all foreign car makers to operate through JVs is to protect local players, maintain control over the industry and ensure the industry does not become dominated by foregin players. However, this policy approach has insulated Chinese companies from true competition and hence there has been little incentive for them to become globally competitive.

　　In contrast, the newer private local brands which have not really benefitted from much government protection have made more impressive progress both in terms of technology progress and in selling cars in exports markets.

　　The requirement to have JV brands is another aspect of protectionism. In a way, this policy acknowledges that many Chinese vehicle manufacturers are still struggling to develop independent vehicle designs, lack the technologies and require help from their JV partners. Most JV brands are using outgoing vehicle platforms from the foregin partner, which are still percevied as better and more competitive than the products indepdently developed.

　　It is also interesting to speculate how the industry could have developed without the “JV rule”. China’s industry could have become like Brazil, dominated by multinationals such has VW, GM, Fiat and Ford. Or, it could have become like India, meaning many of the uncompetitive, state-owned companies would have had to exit the industry but some world class local companies such as Mahindra and Tata would have emerged. In both cases, foreign companies would have established a dominant role in the industry.

　　(413 words)

　　2. There is a very distinct comparison, that is, 2009 was a turning point. In 2009, Chinese government introduced favorable policies to stimulate auto consumption, which led to a booming car market.

　　Currently, more people are calling for government to re-introduce policies to stimulate consumption so that Chinese car market can grow rapidly again like the past two years. In your opinion, should government introduce such policies now? Moreover, what is the inherent power to promote Chinese car market forward?

　　In early 2009, developments in global and Chinese macroeconomic environment and outlook for car demand were extremely worrying. Against this backdrop, China’s macroeconomic stimulus package and specific measures to stimulate auto consumption were necessary and welcomed by the Chinese and global industry. It can be said that the government’s main objective was to ensure a soft landing for the economy and the auto industry; not create the type of boom which we actually saw. Attractive incentives and high level of confidence pulled forward car purchasing decisions and after strong sales in 2009 and 2010 there was much less pent-up demand in 2011 and demand growth in 2012 is also expected to be weak by China’s standards.

　　What happended in 2009 and 2010, while positive for the industry in the short term, was not necessarily healthy from a medium and long term perspective. Incentive fuelled boom generally result in market distoritons and over-optimism when it comes to future planning and there is generally always a “post-stimulus” hangover when demand growth either declines sharply or actually falls. It is unhealthy for automotive market and the industry to become addicted to government support measures.

　　So, I think the market should be allowed to determine its own level of natural level,without government support and intervention. In the medium and long term, the emphasis should be on sustainable growth, striking the balance between mobility, aspiration to won a car, congestion, environment, energy supplies and the health of the auto industry. Any government intervention to should ensure that it does not adversely impact balanced long term sustainable growth.

　　(262 words)

　　3. Last year, we have already talked about the way of Chinese auto manufacturers’ mergers and reorganization. It should be said that it is still a hot topic this year. Nevertheless, we have also seen some large automotive groups encountered many problems in consequence of merges and reorganization, including management problems. For instance, workers in Changhe-Suzuki took strike action to protest management’s decision. According to some people, most of mergers and reorganization are pushed by national policies rather than market, so many problems arise. How do think about it?

　　Yes, I agree that China’s policy for consolidation of the auto industry is more politically driven; the role of market forces or business rationale for M&A in China’s automotive industry is minimal. Private companies or foreign companies are not even recognised in the auto industry consolidation road map and hence consolidation generally involves one SOE taking over another SOE.

　　The track record of M&A in the global auto industry is patchy with some disastrous high profile failures (e.g. Daimler-Chrysler, Daimler-Mitsubishi, SAIC-Ssangyong) and some recent successful examples such as GM-Daewoo and Tata-Jaguar-Land Rover). Post integration problems can commonly occur and strike action to protest against management decisions is not uncommon or unique to China

　　China’s consolidation policy roadmap needs to be revised to be better in tune with the structure and requirements of the industry, with more emphasis on business rationale and less emphasis on political factors. Specifically, it needs to formally recognize the existence of private domestic players and foreign assemblers and allow these companies more freedom to engage in M&A activities and bring their experience, capabilities and resources. Larger Chinese SOEs don’t lack financial resources but they have their own development challenges. Private and foreign companies can often bring in different types of technology, management processes and post-integration management capabilities.

　　Clearly, with current restrictions on foreign companies operating in China, it is difficult for them to participate in the M&A and consolidation process. Removal of restrictions on foreign companies to operate through joint venture would be the first step in deregulating the industry and eventually allow greater foreign participation in the domestic M&A activity.

　　(245 words)

　　4 . New energy is always the theme of all domestic and foreign large-scale auto shows. However, as a matter of fact the development of new energy vehicles is not satisfactory, because few consumers are willing to purchase new energy vehicles.

　　Considering that in China the new energy planning hasn’t been issued in time, and new energy models launched by auto manufacturers haven’t performed well in market, how do you view China’s new energy vehicle industry’s development status? What is the biggest challenge to it? In your opinion, in which year could China’s new energy vehicles achieve industrialization?

　　In recent years, there has been considerable media and PR activity associated with the new energy vehicles, especially in China. In theory, New Energy vehicles were regarded as offering an opportunity for the Chinese industry to leapfrog their foregin compeitors and also provide a “neat” solution to the dependence on fossil fuels.

　　But it is fair to say that actual progress and sales performance so far has been very disappointing. China’s policy roadmap has so far not been pragmatic and even Prime Minister Hu Jintao has questioned the philosophy of putting so much emphasis on Battery Electric Vehicles.

　　Key obstacles for more rapid adoption of electric vehicles include high purchase price (in particular, battery costs still need to drop more dramatically before electric cars can become more price competitive), the limited driving range and inadequate charging infrastructure. How quickly will these be established ? Will greater adoption of electric cars put significant upward pressure on electricity costs and reduce the competitiveness of electric cars ? Issues such as shortage of electric power, lack of common technical standards for EV charging interface and infrastructure and safety will also hinder progress.

　　In China, there is very strong government commitment and financial resources to support developments in this sector including generous grants to the local industry and aggressive subsidies from national and municipal governments for buyers of electric and plug in hybrid cars.

　　China also has a huge pool of engineering resources to support development of battery, motor and other related technologies and the financial resources and ability to rapidly establish of EV charging infrastructure. Compared to most developed countries, Chinese consumers also appear to be more “open” to buying EVs.

　　In the medium term, government subsidies will have play a role in accelerating market penetration but as we have seen, so far individuals are not taking up the very attractive incentives available to purchase electric vehicles or plug in hybrids in many Chinese cities. This situation will only change when there is greater progress in areas such as cost of battery, establishment of charging infrastructure and improvement in driving range.

　　In the near term, Chinese policy makers need to acknowledge the significant technical and infrastructure obstacles before battery vehicles become more competitive and acceptable to consumers. The policy direction will now most likely change to support not only battery electric vehicles and plug in hybrids but also broader range of new energy vehicles such as hybrids and vehicles powered by alternative fuels.

　　Overall, although demand is set to accelerate post 2015, it currently looks as though penetration of battery electric cars will struggle to get to 2-3% of total car market in China, even in 2020. There are currently more reasons to be optimistic about the outlook for hybrid cars, especially plug-in hybrids but the internal combustion engine is likely to remain as the dominant propulsion mode at least for the next decade and most likely a lot longer. There is still plenty of scope to make improvements through measures such as direct injection, turbo charging etc.

　　Copyright notice

　　All images and texts displayed on auto.sohu.com are copyright protected. Any unauthorized reproduction in any form is strictly forbidden. Content copy, store or transmit should acknowledge auto.sohu.com as the source of the material.