Catching up and the development of an independent Chinese automotive industry with a sustainable competitive base

Abstract In 1979 China opened its doors to the international economy after having isolated itself for decades. Its economy was underdeveloped compared to international standards and therefore initiatives for catching up were undertaken. In this thesis a closer look will be paid to this process by addressing the automotive industry on a national, regional and cluster level. One of the goals set by the Chinese government is to establish a sustainable competitive independent automotive industry. To be competitive one has to become innovative on a continuous basis and be able to recognize, implement and improve on significant technology thus closing the gap between the own company and frontrunners that determine the technological and manufacturing frontier. This capacity to recognize, assimilate and create knowledge by individual firms is referred to as Technological Capability (TC) and is developed by in house efforts on R&D that are augmented by interaction with domestic and international sources of technology (Kim, 1997). Consequently the Chinese are putting great effort in attracting Foreign Direct Investment (FDI) by Multi National Firms (MNC‟S) that should bring the needed capital, knowledge and skills. As knowledge and skills are vital for competitiveness, it is however unlikely that MNC‟S will readily share these assets with Chinese firms since this could compromise their own position in the market. To solve this problem and embed as much value adding activity as possible in the domestic economy, the Chinese are trying to set up spatial agglomerations and form clusters that are expected to become self reinforcing, therefore attracting more FDI and speed up the diffusion of vital information. Theoretical and empirical results support the main findings: The Chinese government has succeeded in creating Joint Ventures with foreign car makers. However these carmakers have a tendency of following their own strategy or creating favourable conditions on their own. It became clear that in China, most cars that are produced are imported international models presumably meant to obtain a large market share. These models are not locally developed but are imported by international carmakers that use the Chinese partner as a way to gain access to the huge potential market and exploit China‟s low labour costs by having these models produced locally. Most international partners show little sign of assisting their Chinese partner in creating TC on a national and regional scale but seem to fall back in their traditional role.