Head of China’s car lobby warns foreign brands over R&D

The head of China’s powerful domestic car lobby has warned foreign car companies that their local joint ventures should not be reliant on them for technology but instead develop their own R&D capabilities – a strategy many multinational automakers have been slow to adopt.

Dong Yang, secretary-general of the China Association of Automobile Manufacturers, also said foreign-invested joint ventures should help China export 20 per cent of its annual vehicle production by 2020. China’s passenger vehicle market is the world’s largest, recording more than 18m unit sales last year.

Most foreign-invested car factories are focused exclusively on supplying soaring Chinese demand, which increased about 15 per cent in 2013. Their overseas parents, who are subject to a 50 per cent ownership ceiling, receive lucrative royalties in return for their provision of proprietary technologies.

“Foreign invested joint ventures should have their own research and development capabilities and reduce their reliance on overseas technology,” Mr Dong said. “They should not just manufacture in China and also need to turn their attention to global export markets.”

Mr Dong cited GM’s joint venture with SAIC Motor as a rare partnership that had made inroads in export markets with its Chevrolet models. Last year Daimler and BAIC Motor, its partner in a Beijing Mercedes-Benz factory, also launched a new engine plant that plans to export components back to Germany.

Many of the domestic automakers represented by Mr Dong’s lobby group are in crisis as their sales and market shares plummet. First-quarter sales for Geely, the private automaker whose parent also owns Volvo Cars of Sweden, fell 37 per cent.

Conversely, foreign-invested joint ventures have enjoyed another strong start in 2014. But the domestic partners involved in these operations – typically large state-owned groups such as First Auto Works, SAIC Motor and Dongfeng – have failed to develop their own brand businesses.

Based in the central Chinese city of Wuhan, Dongfeng’s own-brand sales account for less than 10 per cent of its total passenger car sales – most of which are derived from its multiple joint ventures with foreign automakers.

In an attempt to jump-start its own development efforts, in February Dongfeng paid €800m for a 14 per cent stake in Peugeot after the French company’s alliance with GM failed to make headway. As part of the deal, Dongfeng will gain access to Peugeot technology and the two companies will target export markets in southeast Asia.

“We never really knew what GM wanted,” said one French auto executive. “With Dongfeng we know what they want. They want technology.”

Additional reporting by Wan Li