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For the car industry, less is more

For the car industry, less is more

The symbolic value of Chinese supremacy in the auto industry is intact. Despite ups and downs, the top position reached in 2009 is indeed a symbol of a modern and powerful country. China ranks first worldwide in both manufacturing and consumption of vehicles. The economic downturn makes players in the affluent markets turn their eyes to China, where all the big companies invested heavily. Now, the question is: Are there too many plants in China? According to J.D. Power & Associates, a reputed global consulting company, by 2013, China will have a manufacturing capacity of 31 million vehicles, astonishingly more than the current 18 million. Theoretically, this massive increase is possible, since the country has a low ratio of cars/population (approximately 1:70, much lower than the level of some industrialized countries, for example Italy, with a ratio of 1:2).

This has caused intensifying concern, with some demanding a radical shift on the industrial policy, while others denouncing the uncontrolled car registrations, endless new highways construction and demolition of old urban fabrics. It calls for a solution to tackle this “quantitative mania” that can lead to an unprecedented level of oil consumption and pollution. Curiously enough, these voices do not come from pure environmentalists or people being nostalgic for traditional life, but signals of a fierce battle among the Chinese establishments. The Energy Research Institute under the powerful National Development and Reform Commission (NDRC) stated: “The government must take the leading role in controlling unrealistic growth”. The Ministry of Environmental Protection echoed the concept: “For the auto industry to develop, we should not try to sell more, but to improve the units sold.”

Obviously, they encourage what Beijing has recently done to rein in car sales. But, for them, terminating the incentives for car buyers and restrictions on registering are not enough. More innovative models with better fuel efficiency (to reduce the carbon-dioxide emissions) and low-consumption engines should be manufactured, such as hybrids and all-electric. These requests are in sharp contrast with the mindsets of existing manufacturers, often supported by local governments.

They are quite stubborn in keeping the current situation, because they are often not responsible for generating income and employment for the local population. Behind the current dispute, two untied knots are visible. The first one has a social aspect: Traffic in big cities has become unbearable, pollution is on the rise, and the energy consumption requires growing purchases of oil from abroad. In addition, Beijing is concerned about building a national identity for Chinese cars to be exported. The move should start in 2015, when supposedly the efficiency, the design and the cost will have been accepted the world over. South Korea’s experience was a nightmare, from which China could draw some lessons. It took years for Seoul’s car to smooth away the image of being cheap, unworthy, old in concept and poor in performances. To avoid the same trap, China has to quickly turn to innovation, although it means an increase in costs. Quality should prevail, even if at the expense of quantitative record.

Alberto Forchielli

About Alberto Forchielli

Alberto Forchielli has written 284 post in this blog.

Alberto Forchielli, born in 1955 - MBA with Honors from Harvard Business School and BA cum laude in Economics from University of Bologna - is Founder, Partner, Managing Director, Investment Committee Member and Member of the Board of Mandarin Capital Partners; Founder and President of Osservatorio Asia, a non-profit Research Center focusing on Asia; Founder and President of Cleantech srl, a renewable energy company mainly focused on developing and managing utility-grade solar energy projects. From July 2012 he is Director of the Executive Council of CEIBS (China Europe International Business School) in Shanghai. Forchielli is an expert in international business development, particularly in China and India, thanks to his strategic abilities based on a 30 years experience. He publishes a weekly release: ‘Notebook from Shanghai’ on Radiocor Il Sole 24 Ore, the largest Italian Financial Press Agency. He also holds weekly interviews on China economy on Radio 24 - Il Sole 24 Ore and he publishes his own Blog on Caixin Media website in China: fugeli.blog.caixin.com/, and his own English blog: www.albertoforchielli.com. Born in Bologna, in his own operative background he experienced working and extensively living in several Countries all over the world: Singapore at Finmeccanica, Washington DC at World Bank, Luxembourg at European Investment Bank, Rome at IRI Group, Turin, Boston and London, Santiago and Lima at Mac Group, Hong Kong and Shanghai at Mandarin Capital Partners.

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One Response to “ “For the car industry, less is more”

  1. freescore says:

    A fascinating discussion is worth comment. I think that you need to publish more about this issue, it may not be a taboo matter but typically folks don’t discuss these issues. To the next! Best wishes!!

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