Designated Drivers: How China Plans to Dominate the Global Auto Industry

PUBLISHED : Sunday, 29 July, 2012, 12:00am
UPDATED : Sunday, 29 July, 2012, 12:00am


Designated Drivers: How China Plans to Dominate the Global Auto Industry
by G.E. Anderson

Los Angeles-based risk consultant Greg Anderson has analysed how politics affect economic decision-making in China for nearly two decades. Between 2008 and 2010 the Putonghua-speaking American researched the mainland's automotive sector to learn more about the booming economy's industrial planning, and to see whether Beijing has any lessons in state capitalism for the recession-hit West.

Anderson interviewed more than 100 automotive professionals, academics and researchers in China to create 13 case studies and to highlight the evolution of the industry over the past 30 years. Such findings form the basis of Designated Drivers, the definitive beginner's guide to the mainland's car industry, and a flashing warning light to investors - that Beijing's political influences could stifle the sector's global ambitions.

Designated Drivers seems a slow, academic read at first but Anderson sparks when he highlights the local government funding, set-up and growth of the Chery marque, and introduces the main protagonists and complex political influences in the mainland's automotive industry.

He establishes how the sector is torn between commercial and ideological influences: of building a nationally dominant and internationally competitive automotive 'pillar industry' - and creating jobs. If these influences conflict, say in a merger of marques, social-stability concerns will prevail in the interests of the Communist Party's ultimate aim of 'regime survival', the author warns.

Anderson gets into high gear when he reveals the extent of Beijing's often pragmatic control of the sector and the significant, sometimes conflicting role of local governments in it. He reveals how the political-appointee leaders of state-owned enterprises (SOEs) might be tempted to devise short-term strategies for their promotion appraisals every five years. As a result, many SOEs stuck to the revenue-earning, job-creating assembly of foreign-branded cars instead of emulating Japanese and South Korean counterparts' early investment in long-term research and development of homegrown marques. Meanwhile, the private carmakers that invest the most in R&D must often face an uphill battle with locally built and favoured SOE brands, the author says.

Anderson's case studies vividly illustrate the dogged, buccaneering spirit of the mainland's independent marques in a controlled but often unpredictable sector. He explains the rise of Hong Kong-listed Geely under the canny Li Shufu, and illustrates the quirks of the mainland legal system's rulings on real estate and intellectual property.

Anderson concisely describes the evolution of foreign marques' involvement in China, and their efforts to staunch the 'bleeding' of their R&D in a country where it is copied increasingly fast. The book's main appeal is the way Anderson questions China's ability to innovate beyond 'merely copying or tweaking' foreign technology. After all, he writes, 'China's domestic auto brands still fall far short of consumer expectations, even in their home market'.

Their prospects are also limited, thanks to insufficient R&D, internet censorship impeding ideas - and hot air, Anderson says.

Most new energy vehicle products, for example, are for show, as marques 'are trying to impress the government', an industry insider tells the author. Another adds: 'China projects much more competence than it really has.'

Anderson's excellent book reminds automotive investors to look in their rear-view mirrors for the sector's nebulous political realities as the economy slows on the mainland.