Every fifth car sold in China is German
Every fifth car sold in China is German
Marcel Grzanna

SHANGHAI - For years, the People’s Republic of China has been carrying the German car industry through tough times.

In 2012, German manufacturers sold a whopping 15.5 million motor vehicles in China, and no end to that record is in sight.

In March 2013 alone they sold 1.4 million cars, a rise of 20%. The manufacturers cling to China like a shipwreck victim clings to a life buoy in the open seas. In the past decade, German companies have invested over 20 billion euros in new factories and development centers with partner firms in China. But there is a dark side to doing business in China: exaggerated regulation, ridiculous controls, forced technology transfers – and even a negative media campaign against four big German manufacturers.

At the Shanghai auto show (April 21-29), such issues are downplayed with a smile by German companies – at least publicly. As long as turnovers keep going through the roof, this is easy enough. But behind the scenes, there is increasing frustration.

Negative TV coverage over these past few months is a reminder of just how many uncertainties go along with investing in China. Within a week, Volkswagen was criticized for transmission system problems – and ended up recalling nearly 400,000 cars. Then it was the turn of Daimler, BMW and Audi, criticized for their use of supposedly toxic insulation materials. The companies have to take the accusations seriously whether or not they are actually true.

Car manufacturers in China are among those kept on the shortest leash. Their production is only permitted alongside that of state-owned companies, which is why managers and sector experts have been wondering if the criticism of the four German companies can be mere coincidence and why they believe that no, it is not coincidence – there’s method behind this.

However opinions diverge as to what the underlying reasons might be. Political reprimand? Are nationalistic Chinese journalists behind the reports? Perhaps the aim is to support Chinese car manufacturers. "What’s going on here is very ominous, and frustration is on the rise. But nobody wants to rebel openly while sales are still good," says one representative of the German car industry, who like so many others didn’t want to go on record talking about the bad vibes.

Low-cost vs. luxury

The fact is that the car market in China is dominated by foreign companies. Only three of every 10 cars are made by Chinese firms. That’s a thorn in the eye of the government. The present Five Year Plan is supposed to shore up the Chinese manufacturers so that their market share reaches 40% by 2015. And all means are considered fair to that end.

The government has ordered civil servants across the country not to choose Audi for their official cars but to go with Hongqi instead. Apparently they are already seeing signs of success – the China Business Journal reports that several hundred advance orders for Hongqi’s H7 have been placed ahead of the market launch in May.

Every fifth car sold in China is German. In the luxury market, Daimler, BMW and Audi have no competition among Chinese manufacturers. "No Chinese producer within the 10 and maybe 20 next years will be in a position to compete with the German luxury car manufacturers," says Yang Jian in Automotive News China.

Chinese cars are mainly successful on the low-cost market, where margins – and prestige – are thin. Even though foreign manufacturers have for nearly three decades been forced to produce in joint-ventures with Chinese partners, and their know-how is thus in large part no secret as a result, the People’s Republic still has had no “Made in China” sales hit. And that frustrates ambitious government officials who are impatiently trying to find what the secret to developing a top car is. They conveniently forget the decades of experience the Germans have under their belts.

The Germans mistrust the many regulations and controls – the feeling is that they mainly serve the Chinese to try and sniff out industrial secrets. Some complain it’s no longer possible to run an efficient business because there is constantly another inspector from yet another department knocking on the door. "The controls are getting ever stricter, and the amount of time they take is huge. But if you don’t play the game, you don’t get the necessary papers," says one insider. Hence the smiling amenability, at least publically, of the manufacturers.

It should be noted however that not all of this is chicanery – many issues remain from the days of the controlled economy, and many paper-pushers still occupy the same posts they did 20 years ago when the state began to privatize companies on a broad basis. To expect these functionaries to have the same flexibility necessary for a multinational is unrealistic.

What’s particularly annoying to the Germans is the fact that the TV coverage of the supposed quality failings of German cars fails to point out that hardly any Chinese companies produce at equivalent standards of reliability.

Beijing car sector analyst Zhang Zhiyong sums the situation up this way: "The Germans have the biggest market share, so they also have a duty to build the very best cars. The TV coverage reminded them of that duty."

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