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In response to the problem of overcapacity in the automotive industry, the government must take a real step.
Not long ago, Xin Guobin, deputy director of the Industrial Policy Department of the National Development and Reform Commission, said that the National Development and Reform Commission is studying control measures and intends to make demands on new production capacity and independent brands in the auto industry. According to statistics, last year China's total vehicle sales were 5.75 million vehicles, which reached 1.73 million in the first quarter of this year, an increase of 37% compared with the same period of last year. In contrast, the current auto industry has overcapacity of 2 million vehicles. Some experts predict that if there is no restriction on investment in automobiles, the production capacity of vehicles in the final period of the “Eleventh Five-Year Plan†will exceed 20 million vehicles, which is more than double the actual demand.
The auto industry seems to have reached the point where it is ill and the government's "hands" can really play a role in rejuvenating it? Recently, two important policies involving the rectification of the automobile industry were involved, which opened the curtain for a new round of macro-control. One is the 11th document of the State Council on the governance of overheated industries - "Notice on Accelerating the Adjustment of Industry Structure with Overcapacity," and the other is the "Notice on Several Opinions on Structural Adjustment of the Automobile Industry" to be issued. The former is formulated for all industries with overcapacity. The auto industry is regarded as a target of strict investigation and gives priority attention; the latter is a concrete plan for the rectification of the automobile industry, which means that the country will carry out special rectification of the automobile industry.
An official of the National Development and Reform Commission explained in the document No. 11 that for the new production capacity of automobiles, it must meet the conditions for independent research and development. Joint ventures and local companies will treat the same in this respect. "The joint venture must at least identify new production capacity for Sino-foreign cooperation in research and development. Foreign investors have already obtained practical benefits in the joint venture. They should support China's steps to improve and rectify the industrial structure."
In the "Circular on Several Opinions on the Structural Adjustment of the Automobile Industry", there is a detailed explanation of the content of the 11th document on the rectification of the automobile industry. In addition to the conditions for all passenger vehicle production investment projects to meet their own brands and independent development of products, existing enterprises must also meet the requirements for the production and sales volume to reach 80% or more of the approved production capacity. According to this notice, some experts understand that the state will no longer newly approve Sino-foreign joint-venture passenger vehicle companies. The purpose is to increase efforts to support the development of independent brands.
The first knife of capacity control was cut in the joint venture, but this knife was cut somewhat weak. In the "Eleventh Five-Year Plan" of the automotive industry, the market share of independent brands must exceed 60%. However, according to statistics from the China Association of Automobile Manufacturers, in 2005, 15 joint ventures produced nearly 2.1 million passenger cars in China, with a market share of 70.3%. In today's joint venture is still a single big reality, 60% of its own brand goals seem impractical. Forcing joint ventures to engage in independent research and development, can this goal be achieved?
It is not feasible for joint ventures to engage in independent research and development. There is no consensus in the industry. Judging from the current situation, the R&D institutions established within the joint ventures are basically designed to prevent the introduction of models that are not suited for soil and water. Pierre Peugeot, the chief representative of the Peugeot Citroen Group in China, said: “At present, no joint venture company can produce truly Chinese-style cars. No matter whether it is Buick or Scorpio, it is based on the original platform because the cost issue has to be considered. â€
In view of the domestic oil quality and road conditions, localized adjustment of the imported models can be completed without the premise of R&D institutions. Others such as replacing the interior, increasing the configuration, lengthening the body, etc., cannot be regarded as true. In the sense of independent research and development. The R&D institutions established by many joint venture companies are virtually useless. R&D personnel do their job of deploying personnel. They don’t waste investment, and they also delay the development of talents.
Let the joint venture engage in independent research and development. Will it be the wishful thinking of policy makers? Because the government departments set such a threshold on the approval of new production capacity projects, if the foreign parties do not do anything, China does not really do it. Independent research and development has become an empty talk. The approval was loose. Everyone was thinking about the loopholes in the policy. The result was back on the old road of “market for technologyâ€; the approval process was strict, the joint venture had no new models to introduce, and the car joint venture’s doors may have to close, leading to national tax revenues. Significantly reduced.
According to the survey, in the first two months of this year, the loss in automobile companies accounted for 46%, and the total loss amounted to 1.16 billion yuan. Some people say that the reason is that foreign countries make profit margins by importing large quantities of parts and components, leading to joint ventures making ends meet. The state may set thresholds for the introduction of models for joint ventures, which may be based on the above reasons. However, this approach has no obvious effect on the promotion of independent research and development. In fact, with the full implementation of the "Administrative Measures for the Import of Auto Parts That Constitute the Characteristics of Complete Vehicles," CKD assembly will become a sight to behold. Cadillac now abandoned domestic production, and BMW claimed to increase its localization rate. This is a positive response from multinational corporations to this approach.
It is not the joint venture but the local company that is the most affected by the regulation of production capacity. Yin Tongyao, chairman of Chery, said that due to tight production capacity, Chery has owed more than 1,000 vehicles each month. At present, Chery’s production capacity is about 200,000 units, and its sales volume reached 189,000 units in 2005. For a national enterprise like Chery, because the profit of bicycles is too low, it must be shipped in large quantities to be profitable. Under the reality that product supply exceeds demand, only by expanding production capacity can we survive in a highly competitive market environment.
From the experience of Western countries, the utilization rate of over 75% is normal, because companies need about 25% of their production capacity reserves to prevent the adverse effects of market fluctuations. It is required that the production and sales volume of enterprises must reach more than 80% of their total production capacity, obviously not understanding the laws of the market.
Qin Lihong, deputy general manager of Chery’s sales company, said that in terms of the current market demand, the existing production capacity and the capacity under construction may indeed be “surplusâ€, but the market size of China is also rapidly expanding and it is currently “surplusâ€. Capacity can be released in the future by opening up markets and turning potential needs into reality.
According to experts, the Chinese auto industry is merely a structural excess, that is, there is an excess of ineffective production capacity and insufficient effective production capacity. Among the more than 100 automobile companies in China, 72 have annual sales of less than 10,000, of which 46 have annual sales below 1,000. These companies should not limit their expansion, but should order it to withdraw. Waste of resources will be quite serious. However, for those thriving local companies, there is no need to chase and intercept; setting up a number of obstacles in new projects is undoubtedly weakening the power of independent brands and cracking down on their own initiative in R&D.
Some people compare real estate with automobiles and think that the government has a lot of misconduct in terms of macro-control. The housing industry related to the national economy and the people's livelihood has entered the market ahead of the time when most residents do not have the ability to purchase homes. This has led to rapid rises in house prices in big cities and the proliferation of market bubbles. The auto industry, which has reached a level of fierce market competition, can completely follow the rules of the market. This did not require the government to insert another leg, but it was tightly held back. When the government directly uses administrative means to deal with problems, it is often that “it is a matter of dying, letting it go, and chaos.†It is better to let the laws of the market fully play its role, and the survival of the fittest. This is even more true for the automotive industry.