Why are There So Many Automobile Manufacturers in China?

A symptom common to many industries in China is the proliferation of enterprises. Through a detailed case study based on original data of the automobile industry, it was found that dynamic entry and exit have been taking place. This industry’s peculiar environment, in which even critical inputs such as engines and designs can be outsourced, is an important factor that induces rampant entry. Although there is significant economy of scale in the industry, many new entrants have succeeded in making profits by rapidly expanding their scale. Thus, it is incorrect to regard their entry behaviour as irrational. However, the Chinese government has contended that the current structure of its automobile industry is imbalanced and has tried unsuccessfully to consolidate it by encouraging the formation of industrial groups.