By Kelly Sims Gallagher
The MIT Press
Cambridge, Massachusetts
2006, ISBN 0-262-07270-X
Reviewed by: Maria Vos-Saab
The Chinese automobile industry is still young; it witnessed a tremendous growth in the production of passenger cars from 2000 to 2005 and in 2002 China produced for the first time 1 million passenger cars!
Still relatively few passenger cars are on the road in China compared to the U.S. and consequently the oil consumption, greenhouse emissions and urban air pollution are all manageably modest.
However the number of cars has the potential to grow in the near future
The big challenge for China therefore is to learn from the mistakes in the US experience and avoid the problems associated with the automotive industry such as urban air pollution and high dependence on oil imports.
Therefore it has to shift gears and either transfer cleaner technologies to China or help the country to develop its own manufacturing capabilities in clean automotive technologies.
This book provides the first study of firm-level technology transfer from the US to China in the automobile industry from 1984 to 2002 and investigates the extent to which technology transfer is an effective mechanism for the deployment of cleaner and more energy-efficient technologies in developing countries.
It gathered data through extensive interviews conducted in China and the U.S. over a period of 4 years from 1999 till 2003.
The book starts with looking at the effects of the rise of the number of cars on the roads in China; next it links industry to economic and social development after which the history of foreign investment is studied, followed by three case studies, exploring the main Sino-US joint ventures in car industry. Finally the effects of technology transfer on environment, energy and economic development are assessed.
China has high levels of car emissions compared to the West and is still behind in implementing strict air-pollution emission standards, partly due to the poor quality of fuel.
What China needs therefore is better emission-control technology and cleaner fuel. This means major investments in refineries are required; so far initiatives to curb car pollution did not prove very effective.
China is also the second-largest emitter of greenhouse gasses after the U.S. and has already implemented strict fuel-efficiency standards out of concern about rising oil-imports and energy security. The standards are in fact more stringent than those of the U.S. but less stringent than the Japanese and European standards.
As Chinese consumers have limited disposable income their priority when buying a car is fuel economy.
The Chinese economy is among the world's fastest growing industries lifting millions of its population out of poverty thanks in big part to the manufacturing sector. The automobile industry played an important role in the growth and received large sums of direct foreign investment (FDI) contributing to the economic success.
While FDI created an incentive for Chinese companies to enhance their products and expand production, FDI is not always positive for a developing country according to a study: high levels of FDI are associated with low levels of domestic skill formation.
Historically state-owned firms in China resisted reform and change. In 2001 China entered the World Trade Organization, possibly a deliberate strategy of the government to yield its existing protection of the auto industry. The effect of China's entry into the WTO meant losing market share for some companies while others emerged but did not result in the prediction that the auto industry would lag as a result. Overall it is still too early to assess whether membership in the WTO helped or hurt China.
However for the industry to survive the government of China has to come up with new methods to build local technological and business skills. Without relying too much on foreign technology, the industry could retain and reinvest more of the profits. In the short term the author does not foresee a strong self-sufficient auto industry in China but it can try to find ways to improve its status.
The Chinese government automobile policies after WW II were inconsistent and weak and hindered the development of the industry.
The Soviets were the first to transfer real knowledge to China in the fifties. During the Cultural Revolution (1966-1971) the country got isolated from the world, central government policies worked against a further development of the sector and as a result there was no investment at all in the car industry.
This meant a lost opportunity for China as Europe, the US and Japan all were working on production, development and innovation.
The first-ever major joint-venture ever in China between a local company and a foreign firm was to be the Beijing Jeep Corporation (BJC) in 1984 soon to be followed by 2 other joint ventures in the early 90's. Still there was no real transfer of technology as the foreign companies were deciding what would be transferred and how.
The first real industrial policy for the car industry was issued by the Chinese government in 1994 aimed at consolidating existing companies, protecting local manufacturers, setting rules for the transfer of foreign technology and stimulating the private market.
In retrospect this policy proved not to be too successful except for the fact that most parts are now China-made.
Entering the World Trade Organization in 2001 was again a reversal of policy as the terms of China's entry meant lifting almost all the requirements placed on foreign investors in 1994 and dismantling trade protection.
In 2004 the 1994 Auto Industry Development Policy was revised with the purpose of focusing more on research, innovation, production and use of hybrid cars and reduction of fuel consumption.
The author analyzes the three main US-China joint ventures between 1984 and 2002 (Beijing Jeep; Shanghai GM and Chang'An Ford) in order to find out how Chinese government policies affected the nature of those joint ventures, to what degree technology and knowledge were transferred and to assess their ultimate success or failure.
The implications for theory drawn from this research are:
- Outdated automotive pollution control technology was transferred to China by US firms during the 80's and 90's due to a lack of proper policies requiring cleaner and energy-efficient technologies.
- Slightly cleaner technologies were transferred to China; however the increasing number of cars on the road offset the benefits.
- Lack of incentives and creativity prevented Chinese-made cars from getting updates at the level of foreign-made cars.
- Of the three companies, GM has been the most successful in penetrating the Chinese market and in cultivating a reasonably good working relationship with its Chinese partner.
- Environmental performance of the GM joint venture was not remarkably good but at least average.
- China's politically powerless environmental movement was not capable of pushing for cleaner technologies.
- Few international rules govern FDI so it is up to the Chinese government to set the standards for the nature and extent of technology transfer.
All the above mentioned factors prevented US DFI from adequately helping to improve the Chinese manufacturing capabilities and the transfer of cleaner technologies to China.
The fact that Chinese environmental law treats both local and foreign companies the same might be another reason for the insufficient transfer of technology; requiring stricter standards means that it would be impossible for local firms to comply, while not imposing stricter rules to foreign companies to transfer cleaner technologies means the Chinese will fall more behind as they are not capable of designing cleaner technologies themselves.
Also due to the fact that both the Chinese government and the foreign funded joint ventures are happy with the status-quo a necessary painful restructuring of the industry does not occur thus hurting both human health and the environment.
The last chapter outlines policy recommendations for the US and Chinese governments and limits to technological 'leapfrogging'.
Leapfrogging can be defined as skipping over generations of technology and in some cases even to advance more and become technological leader in a field.
The potential of leapfrogging regarding environmental issues means that a developing country can either go through the same economic development phase as the industrialized countries with the ensuing pollution or they can skip this phase and immediately apply the available and modern technology.
China has to make a clear choice: whether to 'buy 'or 'make' cleaner new technologies and which technologies to acquire from abroad and which ones to make domestically.
The lessons learnt from the three case studies are that there are limits for China being able to leapfrogging to cleaner technologies as without aggressive innovation they won't be able to challenge foreign companies.
According to the author it is very well possible that China's car industry will remain limited to automobile assembly due to its low-cost labor.
However China already has proved it can become a world leader in a given sector: it already launched a manned rocket into space and developed its own nuclear power designs. The government needs willpower and long-term efforts of government, industry and civil society to catch up with the worlds most efficient and low-polluting automotive technologies by improving its education system of automotive engineers and sending them overseas to study and then luring them back to work in China; set standards for air pollution and fuel efficiency, enforce local know-how to become less dependent on foreign manufacturers and policies to help foster a market demand for cleaner cars.
At the same more cooperation is needed on a bilateral basis between the US and China to advance clean technology transfer. Also the US should provide China with more monetary aid and technical assistance; in the near future the higher demand for oil in China may raise oil prices thus creating a new interdependence between China and the other big energy-consuming countries.
Global climate change will as well adversely affect the US and the implications will not be limited to China but will have world-wide effects.
According to the author this study should be updated in the future and it would be interesting to include research comparing technology transfer from the US to other developing countries with large automobile markets on one hand and the performances of Europe and Japan regarding automobile technology transfer to China on the other hand.