Racing along a bumpy road-Automobile MNCs in China

Dr. Jean-Marc F. Blanchard's picture

The China car market assumed great salience in 2009 as a result of the global financial crisis, which pummeled auto demand elsewhere, Beijing’s successful use of stimulus measures to speed economic and sectoral growth, and the rapid expansion of China’s car culture. In response, many foreign firms accelerated their China investment plans, greased local relationships, and expanded the local sourcing of parts. China, now the world’s largest market, has become vital to global car companies’ sales revenues, licensing and royalty fees, and profits.

While foreign companies are steering capital, profits, jobs, managerial expertise, and technology to China, Chinese officials, academics, and nationalistic commentators continue to criticize the amount of the pie that goes to foreign firms and the amount of technology that is shared. Buckled in by the WTO Trade-Related Investment Measures agreement, China has taken to criticizing the prices of foreign cars, to calling for more technology transfer, and pressing for more R & D in China. It also has refused to lift the 50 percent cap on foreign investment stakes and is conducting a review of anti-competitive practices in the sector. With no signs of a braking of the China auto market and no obvious alternatives, foreign companies are in a quandary. They need the China market, but may be undermining their future if they transfer too much knowledge and technology. At its core, the issue is one of bargaining power: simply put, the “actor” who has the most bargaining power wins. Given its market size, the odds are on China. However, the slowing of the Chinese economy in tandem with the improvement of other markets, thoughtful identification of relevant “actors,” and the clever pursuit of policies to increase how much their “partners” need them versus they need their partners may shift bargaining dynamics to a different track.