China ex-minister says foreign auto JV policy "like opium"

Reuters - China's policy of requiring all foreign car makers to form local joint ventures is "like opium" for Chinese firms and is failing to foster world-class indigenous automakers, a former minister was quoted as saying.

China eclipsed the United States as the world's largest auto market by volume in 2009, but all the state-owned auto groups rely heavily on their foreign partners.

"It's like opium. Once you've had it you will get addicted forever," former machinery and industry minister, He Guangyuan, was quoted as telling the auto channel of Yahoo.com during an industry forum in Tianjin over the weekend.

While He no longer has influence over policy, it is extremely rare for current and even former senior government officials to publicly criticise an existing policy.

China officially opened its door to foreign automakers about three decades a go, requiring each player to team up with no more than two local partners and hold up to a 50 percent stake in the joint venture.

All the world's major car makers are now operating through JVs in China.

"From central authorities to local governments, everyone has been trying hard to bring in foreign investment. But so many years have passed and we don't even has a one brand that can be competitive in the auto world," He said.

"I feel red-faced."

Nissan Motor Co Ltd, Honda Motor Co Ltd and Peugeot SA collectively contributed to over 98 percent of total 2011 sales of their Chinese partner, Dongfeng Motor Group Co Ltd.

Even domestic champion SAIC Motor Corp Ltd gets around 60 percent of its sales from made-in-China General Motors Co and Volkswagen AG cars.

China has now become the largest market for GM and Audi AG among others, but shares of Chinese indigenous brands have been losing ground steadily amid a slowing market.

As of the end of July, sales of all Chinese cars fell 5.4 percent from a year earlier despite a 7.5 percent gain in the overall passenger car market, official data show.

Market share for indigenous sedans was 26.8 percent as of the end of July, down from an all-time high of 30.9 percent in 2010.

Policymakers in Beijing have cajoled joint ventures into making new brands which they hope could give the Chinese side access to much-coveted foreign technology.

But instead of developing a car from scratch that would allow Chinese partners to claim half the patent rights and obtain know-how from their foreign partners, all the JVs simply took an existing foreign car model and only made a few changes to "create" a new JV car.

GM and SAIC's first JV car, Baojun 630, is built on old Buick Excelle, while Dongfeng and Nissan's first Venucia car is fashioned after Tiida.

The second Baojun car which hit the showrooms two weeks ago is an old Chevrolet Spark with no tweaks at all. The yet-to-be launched second Venucia is said to be Nissan's compact March.