Industrial Policy in China: Successes & Failures

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The Chinese government's evolving policies have failed to achieve many of their purported goals. They have failed to regulate entry, and they have failed to foster successful "national champions" with independent technical capabilities. China's 37 provincial-level subdivisions have lobbied with considerable success to have at least one joint venture in their jurisdiction. The result has been a large number of geographically dispersed firms in all facets of the industry. Given a large market, at least some of these firms will be able to realize assembly plant efficiency. However, dispersion will impede obtaining efficiency in the supply chain, including implementing just-in-time logistics and coordinating in the development and engineering of new models. Despite dispersion, there is one significant nexus in Shanghai for OE and supplier design centers. This implies that the two assemblers with core operations there, VW and GM China, will be in a better position to localize operations with attendant benefits of closeness to market in design and management. From the perspective of Shanghai, it should also lead to the creation of a cluster of high value-added jobs in automotive design and engineering. Despite these policies failures, China overall meets domestic demand with vehicles that have high domestic content and at prices and costs approaching global standards. For assemblers, that's not good as the global standard is one of low profitability. [ppt posted]