Execs fear China will use policy to grab designs, tooling

Alysha Webb, Automotive News

Beijing - A policy being considered here could force foreign automakers, if they want to expand in China, to hand over auto designs and tooling to their Chinese partners.

The policy says automakers that want to build a plant or enter a new segment must own the effort's intellectual property.

Like many policies posted by the Chinese government, it is open to interpretation. So far, the policy is mainly creating anxiety among foreign executives. It's too early to say how the government will enforce the policy, published March 12.

Ostensibly, it is designed to control heedless expansion of many small, inefficient automakers. China has more than 100 manufacturers, many producing fewer than 10 000 vehicles per year.

But the market is dominated by cars assembled at joint ventures between foreign companies, such as General Motors and Volkswagen AG, and Chinese companies. The Chinese partners often have limited product development abilities.

Here is why many foreign automakers are losing sleep: The policy may force them, if they want to enter a new segment, to give rights to the design of the car to a Chinese partner. Or, the policy may force foreign automakers to share proprietary manufacturing technology.

The same requirements could apply if an automaker wants to build a plant in another city.

"The government is using control of the overcapacity issue to squeeze the future expansion of foreign brands," says a public relations executive at a Western auto manufacturer. He declined to be identified to avoid angering the government.

Says an executive at a Western auto manufacturer who deals with the Chinese government regularly: "On the surface, it uses the excuse of trying to control the unnecessary capacity. But you can use it to encourage or discourage foreign participation."

The executive says the policy is sure to become official. China's government has become increasingly concerned about the dominance of foreign companies in the automotive industry and the inability of domestic automakers to develop their own products.

The government is already prodding local automakers, such as Shanghai Automotive Industry Corp., to develop their own intellectual property. Shanghai Automotive partners with GM and Volkswagen to assemble cars in China. Shanghai Automotive doesn't sell any vehicles under its own brand yet.

Automakers that entered China late, such as Ford Motor Co. and Toyota Motor Corp., would be at a disadvantage because they are more likely to expand to other geographical areas or enter new segments.

Says the public relations executive, "What is critical is the next document" that spells out how the policy will be carried out.

From Automotive News (A Crain publication)