On February 25, Dongan Power, a subsidiary of China Aviation Industry Corporation, announced that AviChina is planning to establish a joint venture with Dongfeng Motor. This move comes just after SAIC successfully merged with Nanjing Automobile and found its path forward. Before the 2008 auto conferences, Hafei Auto’s plan to relocate its automotive operations to Dongfeng was another major milestone in the domestic automobile industry.
While the industry celebrated the news that China's auto production and sales would surpass 10 million units in a certain year, some analysts raised concerns. They pointed out that even the total annual output and sales of the entire Chinese auto sector were still lower than those of major global players like General Motors and Toyota, which each produced over 9 million vehicles in 2007.
If China aims to produce and sell joint-venture brand cars, the performance of its own brands may not reach the level of second-tier international automakers. Even with acquisitions like South Korea’s Ssangyong Motors or the reorganization of Nanjing Auto, SAIC's goal of 2 million units in 2008 might not translate into strong international competition.
The global automotive landscape has evolved from the traditional “6+3†structure to a more interconnected “4+X†model, where European, American, and Asian players are increasingly intertwined. As the fastest-growing market in Asia, China still maintains a “3+X†pattern. However, multinational automakers are aggressively entering the Chinese market, aiming to capture its potential as the world’s largest auto market.
In addition to this, many foreign automakers are implementing the “China + 1†strategy, investing in neighboring countries such as Russia, India, and Vietnam. For example, Toyota has expanded into Russia, Honda into Vietnam and India, and Nissan into India. This creates a complex web of relationships between global and local players.
Meanwhile, international automakers continue to restructure their partnerships. GM, Ford, and Renault-Nissan form a complex triangle, while GM has sold shares of Fiat and Suzuki, and Ford has divested Aston-Martin. Jaguar and Land Rover were acquired by Tata, and Daimler-Chrysler sold off its stake in Mitsubishi.
Looking at China’s top three state-owned automakers—SAIC, FAW, and Dongfeng—they have both joint-venture brands and their own brands. The revised national policy aims to create three to four key companies producing over 2 million vehicles annually by 2010. SAIC, after integrating Nanjing Auto and Rover, now targets 2 million units ahead of schedule. FAW aims for 1.7 million, and Dongfeng targets 1.35 million to maintain its top-three position.
If Dongfeng can acquire Hafei before PSA, it could close the gap with FAW and benefit from both. Companies like Chery, BAIC, GAC, and Chang’an are competing fiercely for the remaining quota, setting sales targets between 900,000 and 1 million units.
Despite these ambitious goals, the Chinese auto industry remains on a precarious edge. Just as in ancient times, when Su Qin advocated "Lian Heng" to counter the powerful Qin state, and Zhang Yi promoted "Longitudinal" to break the alliance, today’s Chinese automakers must find their own way to survive against multinational giants.
Experts predict that 2008 will see a surge in mergers and reorganizations. Beyond the consolidation of state-owned enterprises, there is a need for large-scale integration, including private and state-owned companies. The government should act as a "business incubator," supporting policies, taxation, and resource integration to help companies develop R&D centers, procurement hubs, and service networks.
With rising raw material and fuel costs, the focus should be on building a robust R&D system to develop affordable, energy-efficient, and eco-friendly vehicles. The goal is to create strong national brands that can compete globally.
Only through such strategic restructuring can the Chinese auto industry avoid being overshadowed by vertical integration and outflows, and truly claim its place as the world’s largest auto market.
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