China's Automobile Industry: Policies, Problems, and Prospects, and: Zhongguo qiche gongye jingji fenxi 中国汽车工业经济分析 (An economic analysis of the Chinese automobile industry) (review)

Reviews 469 Eric Harwit. China's Automobile Industry: Policies, Problems, and Prospects. Armonk and London: M. E. Sharpe, 1995. xi, 208 pp. Hardcover $55.00. Paperback $22.95. Li Hong ^iS. Zhongguo qichegongyejingjifenxi F??^-???^^?? (An economic analysis ofthe Chinese automobile industry). Beijing: Chinese People's University Press, 1993. vii, 388 pp. Paperback RMB 8.70. There are clear winners and losers in China's automobile industry. In the 1980s, with the size of China's economy growing at a double-digit rate, accompanied by an explosion in demand for imported cars in spite ofthe exorbitant 150 to 220 percent tariffrates, and the prospect of over 80 million families having the income , by the year 2005, to afford private passenger cars, foreign auto manufacturers from Germany, the U.S., France, Italy, and Japan have been scrambling to set up joint venture assembly plants and components manufacturing. By 1994, China produced 230,000 passenger cars out ofa total of 1.4 million vehicles. Excess capacity was evident because of the austerity program to control inflation. Germany's VW had cornered over 40 percent of China's domestic passenger-car market. But the export ofcars from China remains minuscule. The two books under review explain what has happened and how it has happened. The emphasis ofeach book reflects the disciplinary bias ofits author. While Harwit, a political scientist, emphasizes the bureaucratic politics ofthe decisionmaking and policy-implementation process affecting four foreign automobile companies in China, Li, an industrial economist working in China, understandably shies away from a discussion ofpolitics and specific political personalities. But Li is critical ofthe government's many macroeconomic policies and local government actions, which he blames for having the unintended effect ofencouraging the proliferation ofinefficient factories and retarding the consolidation of China's automobile industry in order to achieve economies of scale. Indicative of the relative openness ofthe automobile industry to outside scrutiny, each author had access to industry and government documents, manufacturing plants, and officials connected with the industry who were willing to give interviews in and out of China. As Li establishes early on, the automobile industry is economically significant because it is a capital-intensive and high-value-added industry capable ofgenerat-© 1995 by University ing a bigh rate 0freturn on investment. The extensive multiplier effects ofthis inofHawai ?Pressdustrycreated 11.3 percent oftotal employmentin Japan in 1989, and 9.2 percent employment in China in 1988 (Li, p. 23). Internationally, the whole industryhas undergone significant restructuring since the 1970s because ofcurrency realign- 470 China Review International: Vol. 2, No. 2, Fall 1995 ment, the energy crisis, environmental concerns, and demographic changes. The industrial trend in the 1980s has been toward consolidation and transnationalization in sourcing and manufacturing. Competitiveness in this industry comes from the ability to innovate and reduce production costs. Most researchers in this field have agreed that for political and economic reasons, China's automobile development bucked this global trend and, with few exceptions, remained a highly decentralized cottage industry in the 1980s. Students familiar with Maoist economic policy will find nothing surprising in Harwit's description of Chinese automobile policy before 1978 as alternating between pragmatism and radicalism, reflecting the political fortunes of top policymakers . The former emphasized modern technology and organizational rationality in an attempt to achieve economies ofscale, while the latter emphasized the Maoist ideology ofself-sufficiency and rejection offoreign technology. The result was that on the eve of the 1978 economic reform, China had two enormous, highly centralized truck-manufacturing plants in Changchun (First Auto Works, or FAW) and Shiyan (Second Auto Works, or SAW), plus numerous decentralized "small but complete" ^hMe vehicles plants scattered all over the landscape making substandard vehicles, none achieving economy of scale. The incentives for the development ofpassenger cars came in the late 1970s, when the pragmatists returned to power. They agreed that the passenger-car industry needed to be modernized and rationalized in order to stimulate the economy , and that the flood ofimported cars from Japan that threatened to deplete the country's foreign-exchange reserves and upset the trade balance had to be stopped. By Li's estimate, China spent U.S. $14.4 billion to import 1.31 million vehicles between 1950...