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The Emergence of the Chinese and Indian Automobile Industries

and Implications for other Developing Countries

Gregory W. Noble
Institute of Social Science
University of Tokyo
May, 2006

The Chinese are coming, the Chinese are coming—and now the Indians,
too. Alarms about the rapid emergence of two gigantic new competitors have
begun to rattle the global motor vehicle industry. In just half a decade, China
has grown from a modest market on par with Spain to the third-largest
automotive market and fourth-largest auto producing country, with output trailing
only the United States, Japan and Germany; in 2006 China is all but certain to
surpass Japan as the second largest market for new motor vehicles. China has
attracted tens of billions of dollars in direct foreign investment (DFI) each year,
not least in motor vehicles. Virtually all of the world’s automobile assemblers and
leading suppliers have invested in China, both to access the domestic market,
and (in the case of parts firms, and potentially assemblers) to export.
Assemblers and first-tier component firms in North America inform their
suppliers that unless they match “the China price,” they will be dropped without a
second thought. Just in the last year or so a similar buzz has begun to emerge
about India, another giant country filled with smart engineers and inexpensive
workers—many of whom, unlike most Chinese, are highly articulate in English.
Nor is the sense of threat contained to automotive producers and labor unions in
high-wage countries: to many in the developing world, China and India seem
destined to emerge as fierce, even overwhelming competitors.
Despite the understandable concern expressed by headline writers and
threatened firms and unions when the most populous countries on earth start
growing at high speed and breaking into new markets, within the automobile
industry skeptics are not hard to find. Huge populations and growing
economies notwithstanding, China and India remain relatively small and
unsophisticated players in the global industry, particularly in the crucial
passenger car segment, their exports still only a fraction of those emanating
from mid-sized players such as Mexico and Korea, much less global leaders
Japan, Germany, France and the U.S. Their impact on other developing
countries is even smaller and more indirect, since the large bulk of their exports
aim at advanced markets such as Europe and North America. The
value-added and technological sophistication of China and India remain limited,
and many observers question whether either or both will be able to maintain the
waves of reform necessary to sustain high-speed growth.
The alarmist and coolly skeptical views are not impossible to reconcile.
China and India are already important economies, and they are likely to sustain
vigorous growth, but from small bases. The global auto industry is gigantic and
highly sophisticated, and China and India will continue to play modest roles for
the next decade or more. They may come to exert a somewhat greater impact
in certain regions and markets, such as small cars, vans and light trucks in the
Asia-Pacific region, and labor-intensive parts throughout the world. But even in
Asia, other factors will remain more important, such as the widespread
opportunities created by the continued expansion of demand, bilateral and
regional trading agreements, and the changing relative balance of power
between established Western auto companies and the upcoming Japanese and
Korean assemblers.
The policy implication is clear: particularly in the short run, there is little
reason to devote excessive concern about China and India, and even less
reason to turn toward protectionist measures that will grow steadily more
counter-productive as the globalization of the auto industry continues. Firms and
governments in less-developed Asian countries perhaps should think twice
before competing directly with Chinese and Indian firms in those limited areas
were they are beginning to make a concerted push. At the same, new
opportunities for cooperation will emerge, both directly, as the division of labor in
Asia proceeds, and indirectly, as other countries feed the extraordinary growth in
China and India. The emergence of Chinese and Indian firms, particularly in
small car segments, may also contribute, if initially only modestly, to the social
problems attendant upon widespread motorization, including increased
pressures on energy prices and greenhouse gas effects.

Between understandable concern and misleading hype: the sudden emergence


of China and India
Over the past few years, an increasingly intense round of consolidation
has squeezed the ranks of independent auto assemblers and drastically
reduced the number of parts producers. Reorganization and consolidation,
driven by increasingly powerful economies of scale and scope, are expected to
continue, driven in part by the gradual displacement of Western assemblers and
parts firms by more younger and more efficient Japanese and Korean firms. A
Japanese auto expert in the consulting firm Accenture estimates that in the past
15 years mergers, bankruptcies, and exit have reduced the number of world auto
parts firms by roughly 80 percent; over a slightly longer period almost as many
assembly firms have disappeared (Misawa 2005: 66). Particularly in North
America, with its relatively open markets and proximity to Asia, bankruptcies
have spread even to such giant first-tier component manufacturers as Delphi
and Dana. Industry observers agree that if General Motors (GM) and Ford are
to avoid bankruptcy they will have to take much more drastic steps to cut excess
capacity and improve the process of new product development; many doubt that
they will be able to do so.
In this volatile and contentious environment, the entry of Chinese and
Indian firms as new competitors understandably has raised great concerns (see
e.g Detroit News December 5, 2004). Western suppliers report that their
customers, desperate to reduce costs to compete with Toyota, Hyundai and
other overseas rivals, demand that they match the “China price” by drastically
cutting prices themselves, procuring materials from China, or investing in
Chinese production (Business Week December 6, 2004). Billions of dollars in
direct foreign investment in China, and more recently in India, have created
impressive new capacities and raised the specter of excess capacity that may
only be resolved through exports. Unlike their counterparts elsewhere, Chinese
auto firms, sustained by rapid growth in demand, support from local
governments, and capacity to develop niche markets of little interest to the
multinationals, and lacking a developed institutional framework and political
environment facilitating acquisitions and mergers, are not consolidating but still
expanding in both numbers and capacity. And while most parts production in
China, particularly for export, focuses on labor-intensive products such as wire
harnesses or wheels, skills are rapidly increasing; with sufficient effort by
multinational investors, virtually anything can be built in China. Assemblers and
first tier suppliers can bargain down the price of components from smaller
Western parts firms by threatening to source from China.
A proprietary study conducted by McKinsey and the Associated
Chambers of Commerce and Industry of India (summarized in PTI, April 18,
2005; Newsweek International November 28, 2005, and the Financial Times,
December 1, 2005) estimates that by 2015 global auto production is likely to
reach $1.9 trillion dollars, of which around $700 billion dollars will be produced in
low cost countries. Exports from low cost countries look to increase to $375
billion dollars, more than quintuple the current level of about $65 billion. The
study suggests that Indian production could expand from nine billion dollars
currently to around forty billion dollars, of which 20-25 billion dollars would be
exported—twenty to twenty-five times the current level of exports. Roughly half of
the export growth would come from displacing production by other countries.
Already, Suzuki and other foreign assemblers have begun to procure engines
and other major parts from India for export to third markets (Nihon Keizai
Shinbun, February 5, 2006).
As for China, its Ministry of Commerce has suggested that by 2015
Chinese firms could account for 10 percent of the global market, or 120 billion
dollars in exports (Asia Pulse, April 1, 2005). As one press account notes, “GM
imports only one-tenth of 1 percent of the parts used in its U.S. assembly plants
from China […but…] expects to increase its auto part purchases from China
20-fold in six years--from $200 million in 2003 to $4 billion in 2009 (Detroit News
April 7, 2005). Similar trends are observable at Delphi, Ford and other major
assemblers and first-tier suppliers (U.S. - China Economic and Security Review
Commission 2005: 30).
Similarly, while outsourcing of information technology and engineering
has been relatively tentative in autos compared to the situation in many other
industries, where it increasingly includes even small companies and early stages
of product development by innovative start-ups in Silicon Valley, major increases
have occurred recently. GM, Ford and leading suppliers such as Delphi and
Bosch have opened research and development centers in China and India
employing thousands of engineers and scientists, many of them with PhDs and
years of the most sophisticated work experience. Most of their work supports
development of the local market, but the investments, particularly in India,
increasingly aim at true arms-length outsourcing as well. A study by the
McKinsey Global Institute concludes that “In automotive engineering and R&D,
42 percent of total employment could possibly be offshored.” (cited in Kenney
and Dossani 2005: 6).
Care must be taken in evaluating these numbers. The exact magnitude
of trade in auto materials, parts and components is obscured by definitions that
vary across and even within boundaries and double-counting difficult to avoid in
accounting for the construction of a product integrating tens of thousands of
parts and organized by tiers. Some studies include tires and car radios in the
definition of auto parts, for example, while others do not. Similarly, some
countries include the value of auto parts included in exports of built-up vehicles,
while others do not. Long-term projections by consulting firms and government
officials must also be viewed with reserve. Still, the universal expectation of
rapidly expanding imports of good and services from developing countries led by
China and India is clear.
Finally, Chinese and Indian firms have sharply stepped up the pace of
their exports of vehicles to the developing world, and have begun assembly
operations from Malaysia to Iran to Russia. Both have become net exporters of
cars, have purchased controlling shares in South Korean auto makers (SUVs for
China, commercial vehicles in the case of India), and have begun acquiring
engineering and design capabilities in Europe and North America.
Independent Chinese assemblers such as Chery and Geely, in particular, have
initiated exports of small cars and commercial vehicles to Western Europe, and
have announced bold plans to sell hundreds of thousands of units in Europe and
North America within the next five years. Industry observers remain cautious
about the exact timing, but increasingly incline toward the view that Chinese
firms will succeed in exporting large numbers of vehicles in the foreseeable
future (New York Times January 10, 2006; Automotive News November 1,
2005).
These bold new initiatives reflect long-term declines in the costs of
transportation, telecommunications, and package software, and long-term
increases in the capabilities of developing countries. They also signal the end
of the old dichotomy in world auto production between efficient and innovative
advanced countries and protected, inefficient enclaves in developing countries.
With the expansion of trade and liberalization symbolized by the creation of the
World Trade Organization (WTO), cozy enclaves are no longer viable. New
export opportunities have opened up to countries and producers that can meet
global competitive challenges, though production of many heavy, fragile, and
labor-intensive items will remain viable in the developing world, and the shift
toward “just-in-time” manufacturing will encourage investments in the assembly
of many medium-intensity items on site.
Thus, it appears that motor vehicles could begin to trace the trajectory of
other industries such as textiles and electronics that have witnessed dramatic
and disruptive increases in exports from a small number of highly competitive
developing countries, led by China and now increasingly India as well. After
the Asian financial crisis of 1997-98, direct foreign investment shifted from
paralyzed Southeast Asia to relatively unaffected China. Less noticed at the
time, Western firms such as General Electric (GE) began to outsource software
production to India. Since China and India combine huge populations, rapid
growth, and an unprecedented breadth and depth of engineering capabilities,
other developing countries have reason to fear that they could lose out both in
competition to export to third countries, and even in their home markets. Initial
econometric analysis provides some backing for the notion that exports of other
developing countries could suffer (Eichengreen and Wang, forthcoming 2006).

Skepticism: The Impact of China and India will be Limited


Even if China and India both continue to grow rapidly, exporting a wider
range of parts and vehicles to a wider range of countries, their expansion may
not make a major difference to the global industry. According to the WTO (2005:
Table IV.66), world exports of automotive products in 2004 totaled $847 billion
dollars, accounting for just under 10 percent of all global exports, with trade
expanding at a blistering clip of 16 percent in both 2003 and 2004. While China
was a significant (eighth largest) and swiftly growing exporter, less heralded
countries such as Turkey and South Africa also expanded auto exports rapidly,
and at just 0.7 percent of global automotive exports, China’s exports still trailed
those of Mexico, Brazil and Turkey, and remained less than a fifth those of South
Korea. India’s auto exports, in turn, totaled only about one-third of China’s
(See Figure 1, WTO, Leading exporters and importers of automotive products,
2004, and Figure 2, WTO, Exports of automotive products of selected
economies, 1990-04). Moreover, China’s automotive exports remained
overwhelmingly dominated by sales of low-tech replacement items such as
wheels, tires, batteries, and body parts for which the demands on quality and
design integration were low. Despite improvements in domestic capabilities, the
great bulk of design and technical skills remain in the hands of foreign firms;
even in developing countries with strong engineering corps such as China and
India, subsidiaries of foreign firms conduct most of the design and engineering
(cf. Gilboy 2004).
Nor is the reliance on foreign design and technology likely to change in
the near future. As Fujimoto (2003) emphasizes, while most electronic products,
motorcycles, and even trucks have become highly modular, designing and
assembling passenger vehicles demands a high degree of integration and
intermeshing. Some movement toward greater use of modules notwithstanding,
interfaces between most functional components in the auto industry remain
resistant to standardization and commoditization. Changing a design to make
a car more fuel-efficient, for example, is likely to require complex recalibration of
other elements, such as crash-worthiness and noise insulation. As a result, the
design of vehicles, particularly passenger cars, and the key components within
them, remain firmly in the hands of a limited, and rapidly shrinking, number of
global firms. Even Korea, with its highly successful assembly industry, has
failed to create globally competitive component firms, and remains highly reliant
on Western and Japanese suppliers. To be sure, the degree of integration may
be subject to change (cf. Gereffi, et. al 2005), and some Chinese and Indian
industry figures and academic researchers believe that developing countries can
apply a relatively modular approach at the lower end of the market, where
demands for seamless integration, precise road feel and noise control are less
exacting, but it seems highly unlikely that any assemblers from the developing
world can compete independently in the middle to upper ranges of the auto
market within the next decade, if not longer.

The Emergence of China and India as Economic Forces


Until the 1990s, low incomes and pervasive protection and intervention
by government constrained the economic development of China and India.
Policy reforms, particularly greater openness of foreign investment, began in the
1980s and deepened in the 1990s. The effects of reform were particularly
striking in the automobile industry, not least by increasing incomes and
improving supporting industries and infrastructure.
The last two or three years have witnessed the emergence of a virtual
cottage industry comparing and handicapping India and China, sparked in
particular by a provocative article in Foreign Policy (Huang and Khanna 2003;
see also Huang’s reaffirmation in Financial Times, January 23, 2006; Farrell, et
al. 2004; Deutsche Bank Research 2005; Business Week, August 22, 2005).
Vigorous debates notwithstanding, a rough consensus seems to have emerged.
China has pulled ahead, with a per capital income roughly double that of India,
largely because of its booming labor-intensive manufacturing, supported by
superior physical infrastructure and, partly as a result, greater attractiveness to
direct foreign investment. Despite India’s current weakness, it may well have
better long-term prospects because of its superiority in software and soft
infrastructure, including a democratic political system, an independent judiciary,
better (if still imperfect) financial system, and two aces in the hole: widespread
proficiency in English, and better-managed companies largely free of political
interference and full of experienced project managers with extensive
international experience. In the United States and Japan, the hopeful
conviction that India is destined to surpass China pervades elite opinion and
official government statements (see e.g. New York Times April 10, 2005;
Washington Post June 9, 2005; Nikkei Bijinesu May 8, 2006: 26-50, esp. p. 43).
This stylized contrast misses three important elements. First, the two
countries share many similarities, not just in size of population and level of
development, but weak institutions and reform trajectory. Of the 157 countries
ranked in the Heritage Foundation/Wall Street Journal’s 2006 Index of Economic
Freedom 2006, China ranks 111 and India 121. In the Global Competitiveness
Report 2005-2006, published by Geneva’s World Economic Forum, China is 49th
of 116 countries in “growth competitiveness,” followed by India at 50. Finally, in
the World Bank’s survey Doing Business 2006: Creating Jobs, China comes in
at 91 out of 155 countries, while India ranks 116. Even allowing for the
inevitable imprecision of these surveys, the consistency with which the two
countries are ranked close together, with China slightly ahead, is impressive.
Even some areas characterized by apparently yawning gaps turn out to
be surprisingly similar, or at least somewhat convergent. By conventional
measures, China has attracted far more direct foreign investment, a testament to
the greater attractiveness of its market and the weakness of its domestic firms.
The gap is significantly exaggerated, however, by the prevalence of
“round-tripping” by mainland firms seeking to take advantage of tax and other
benefits granted foreign investors, and by differences in definition and
measurement. As a share of GDP, the gap in net foreign investment is not so
great, particularly in recent years, as Chinese DFI has peaked while DFI to India
has begun to surge (though exact measurement and comparison remain
difficult) (OECD 2005: 13, 27; Mohan 2005). In a 2005 survey of multinational
firms (released December 7, available at atkearney.com), India vaulted past the
United States to trail only China as a preferred destination for direct foreign
investment. Similarly, the contrast between China’s strength in manufacturing
and India’s superiority in software has eroded somewhat recently: the rate of
growth of Indian manufacturing and exports (particularly in autos) has
accelerated, while China has surpassed India in total software output, though
China’s software houses remain far smaller, less sophisticated, and less
internationalized (Red Herring, September 5, 2005; A.T. Kearney 2004).
Second, notwithstanding these similarities, China is indisputably ahead
of India in economic and social development (Asian Development Bank 2005)
and continues to pull ahead. China’s gross and per capita national income are
more than double those of India. China’s rates of savings and investments are
nearly twice those of India, leading to significantly higher growth rates. Despite
the acceleration of India’s growth rate, China has continued to grow even more
rapidly, so the gap continues to expand. Tax revenues, historically a weak point
in China, have surged in recent years, allowing China to spend far more on
infrastructure while maintaining relatively sound government finances, and to cut
tariffs, thus creating a more open and competitive economy. Between 1990 and
2002, China’s lead in secondary school attendance widened, while India’s
advantage in tertiary education turned into a deficit. In 1990, 42 percent of
Chinese girls and 55 percent of Chinese boys attended high school, compared
to 33 percent of Indian girls and 55 percent of Indian boys. By 2002, the
Chinese rates had risen to 69 and 71 percent, while the Indian rates were only
47 and 58 percent. Similarly, whereas twice as many Indians as Chinese
attended tertiary institutions in 1990 (four percent of females and eight percent
of males vs. two percent of females and four percent of males), by 2002,
Chinese tertiary attendance surged to the lead (14 percent of females and 17
percent of males, vs. 10 percent of females and 14 percent of males in India). In
1988, almost twice as many Indians as Chinese published papers in leading
international science and engineering journals; by 2001, the ratio had almost
exactly reversed (National Science Board 2004: Appendix table 5-35; Zhou and
Leydesdorff forthcoming 2006 ). In the latest year for which data are available
(2002 for China, 2001 for India) R&D spending in China was more than four
times greater than that of India (UNCTAD 2005: 105). Lacking adequate tax
revenues, and committed to improving funding of primary and secondary
education, the Indian government has found it difficult to maintain the quality and
competitive position of Indian universities and research institutes (Yasmeen
2004).
Third, while observers routinely point out the numerous daunting
obstacles threatening to slow down or even overthrow the Chinese juggernaut,
the reality is that neither country will be able to sustain growth unless it continues
to carry out difficult reforms. Both countries suffer from a high and rapidly
increasing reliance on imported energy just as oil prices have skyrocketed. Both
will need to continue reforming their banking systems. China’s one-child policy
is leading to a rapidly aging yet still poor society lacking an adequate social
safety net. A higher rate of population growth will keep India younger, but since
the new entrants will hail disproportionately from the poorest and most rural
parts of northern India, integrating them into an increasingly prosperous society
will create a major challenge.
Fortunately, China and India are similar in another crucial way: the
success of liberalization and reform over the last decade or two has convinced
policymakers and public alike that further reform and growth are necessary and
possible. A variety of public opinion polls show that Indians and Chinese (or at
least the more easily surveyed urban residents in those countries) are the most
optimistic peoples in all of Asia (Pew Global Attitudes Project 2005; Wang 2005).
Short-sightedness and conflict over distributional issues, such as moving people
off land slated for public works and industrial development, will not disappear,
but technocrats and politicians in both countries now understand that the
legitimacy of their rule increasingly depends on maintaining rapid economic
growth.

The Emergence of the Chinese and Indian Auto Industries


The auto industry encapsulates many of the themes of recent economic
developments in China and India: constrictive protection has given way to
liberalization and takeoff, and India has joined the chase, without closing ground
on China. In both countries, reforms in the 1980s and especially the 1990s
loosened restrictions on both demand and supply. The key breakthrough
occurred almost simultaneously: in the early 1980s, the Indian government
formed a joint venture with Suzuki, Japan’s minicar and motorcycle specialist;
shortly thereafter, China finalized a joint venture in Shanghai with Germany’s
Volkswagen (VW). At first, local buying power and technological capabilities
limited output, but by the end of the 1990s, the combination of further
liberalization and rising incomes led to a sudden expansion in demand and
production (see Figure 3, Chinese motor vehicle production, 1991-2005)
Increasing success, in turn, gave the two countries confidence to
accelerate liberalization. In 1993 India ended licensing of foreign automobile
ventures, and in 2001 it lifted virtually all restrictions on direct foreign investment
in the auto industry. Tariffs remained stiff, at over 100 percent on vehicles and
just under 35 percent on parts, though preferential trade agreements with
ASEAN, and particularly Thailand, led to some cuts in duties. China’s entry
into the World Trade Organization (WTO) the same year led to a more gradual
liberalization: tariffs on vehicles declined to 25 percent by mid-2006, while parts
tariffs shrank to an average of 10 percent. Foreign auto companies gained the
right to offer auto loans and to participate in car dealerships, though they were
still restricted to no more than a 50 percent share in assembly operations, and a
limit of two Chinese assembly partners (Noble, Ravenhill, and Doner 2005).
Indian passenger car production, barely over 200,000 units in 1993-94,
doubled to just over a half-million units in 2000-01. In the next four years, it
nearly doubled again, topping one million vehicles in 2004-05, and hitting 1.3
million vehicles in 2005-06 (including utility vehicles and MPVs; see Figure 4,
India 1994-2005 Industry Statistics, updated for 2005-06 by Economic Times
April 29, 2006). Exports increased even more quickly. Between 2000 and 2005,
exports of assembled vehicles increased by a factor of six to reach 176,000 units,
all but 40,000 of them passenger vehicles (Society of Indian Automobile
Manufacturers, http://www.siamindia.com/scripts/export-trend.aspx, accessed
May 4, 2006). Output of auto parts, which had grown somewhat more slowly in
the 1990s, also doubled between 2000-01 and 2005-2006, reaching 10 billion
dollars. Exports of auto parts, including those incorporated in assembled
vehicles, also increased rapidly, hitting 1.8 billion dollars in 2005-06 (see Figure
5, ACMA, India Industry Statistics, Auto Component 05, updated for 2005-06 by
Economic Times April 29, 2006).
Though it is often said that economic opening and reform began more
than a decade earlier in China than in India (the end of 1978 vs. 1991), in fact
Indian reform began in the early 1980s (Rodrik and Subramanian 2004), and as
late as 2001, production of passenger cars in China only modestly surpassed
that of India (607,000 units in China in 2001 vs. 513,000 in India in 2000-01;
though production of trucks and busses already was higher in China). Then
Chinese demand and output skyrocketed, hitting one million units in 2002 and
two million in 2003. The much-remarked slow-down in output of motor vehicles
hid the continued vigorous growth of passenger car production, which reached
almost 2.8 million units in 2005, more than double the level in India. Despite
continuing cuts in tariffs that started out lower than in India, imports of whole
cars stagnated (163,000 units in 2005), while exports, led by a Honda transplant
but including also new vehicles from independent Chinese firms, more than
doubled in 2005 to 173,000 units, surpassing imports for the first time (People’s
Daily, Japanese Internet edition, January 14, 2006). Exports of Chinese auto
parts in 2004 totaled about 10 billion dollars (UN Comtrade data, from Noble,
Ravenhill, and Doner 2005); in 2005 parts exports increased 75 percent
(Jinyangwang March 10, 2006), to an order of magnitude greater than those of
India (not including parts and components incorporated in exports of whole
vehicles; recall the problems noted above in defining, measuring, and comparing
parts production and exports).
The mix of vehicles produced in the two giants is also converging
somewhat. Compact and sub-compact cars and small trucks and commercial
vans have long ruled the roost in India. Incomes are lower and tariffs much
steeper than in China, while mini-car maker Suzuki still accounts for a large,
though shrinking, share of the market. In China, government officials and
corporate managers long managed to have their work units (danwei) purchase
cars on their behalf, often complete with chauffeur. Joint ventures with foreign
automakers have focused on the more profitable middle and upper parts of the
market. In the last couple of years, however, the compact and sub-compact
segments have grown more prominent as households have come to account for
a majority of purchasers, and new demand has begun to shift to less prosperous
inland areas. Newly risen inexpensive domestic brands such as Chery (Qirui)
and Geely (Jili) that minimize imports of costly foreign components, capital
equipment and technology have both benefited from and contributed to the rise
of smaller cars.
The economic and political environment is likely to accelerate the trend
toward compact vehicles. Both China and especially India increasingly rely on
imported oil, which analysts believe may stay expensive. The explosion of cars
has raised concerns about air pollution, greenhouse gases, and congestion,
causing the governments to shift policies to favor smaller cars. Both Indian and
Chinese firms are beginning to design their own small cars, and it is likely that
the vehicles and parts that the two countries export will increasingly concentrate
on the compact segment.
Working to overcome possible obstacles to further growth of the auto industry
Firms and governments in China and India are acutely aware of the
critiques raised by the skeptics noted above, and are striving to overcome the
obstacles that currently keep local firms far behind, and dependent upon, the
Western and Japanese leaders. The most obvious problem is product quality,
which lags well behind ever-stiffer and more complex international standards for
fit and finish, drivability, durability, safety, emissions, recycling and product
liability. A careful comparative bench-marking study of the Chinese and Indian
auto industries (Sutton 2004) suggests that assemblers and first-tier suppliers in
both countries have been able, usually with the help of foreign parents or
joint-venture partners, to improve quality and productivity remarkably effectively:
global auto companies increasingly can produce world-class products in a wide
range of developing countries, including China and India. Auto producers,
however, are highly dependent on tiers of sub-contractors, and increasing
quality in the smaller and less internationalized firms in the lower tiers is a far
more difficult proposition. Nor are quality problems limited to individual parts.
Even assemblers and first tier component manufacturers capable of churning
out high-quality cars and parts for their Western partners face daunting hurdles
when they try to design and integrate their own products. China’s Geely and
Chery, for example, have found submitting their cars to Western crash tests a
sobering experience, though they are relentlessly redesigning the models until
they pass the tests.
Neither country seems to have carved out an unassailable lead in
product quality. Sutton’s (2004) survey, one of the few studies directly
comparing China and India, finds the leading firms in the two countries roughly
equivalent. Balakrishnan et al. (2004) document the impressive progress made
by India’s best auto firms, and note the large number of Deming prizes won by
Indian firms. A closer examination suggests, however, that Deming prizes are an
idiosyncratic indicator of quality. The Japan Union of Scientists and Engineers
(JUSE) established the Deming awards in 1951and first awarded a prize to a
foreign firm in 1989. From 1989 to 2000, foreign firms, including one Indian firm,
won just four of the fifty application prizes awarded by JUSE. Then from 2001 to
2005 foreign firms earned 20 of 23 awards, suggesting that a structural
transformation of the awards had occurred. Of the 20 foreign awards, 12 went to
Indian firms, while Thai companies won the other 8 (compiled by author from
data on the JUSE web site, http://www.juse.or.jp/e/deming/10_prizelist.html#02,
accessed May 4, 2006) The large majority of the 20 foreign awards, in turn,
went to firms from just two groups, both of them with intimate ties to Japan: the
TVS group, former joint venture partner of Suzuki, in India, and in Thailand the
Siam Cement group, which has numerous joint ventures and licensing
agreements with Japanese companies (most of the remaining awards went to
the Indian materials group Aditya Birla and its Thai subsidiaries). In 1997 the
Suzuki affiliate Maruti Udyog first pushed its suppliers to apply for Deming
awards, and helped initiate a program at the Confederation of Indian Industry.
Coaching by aggressive and even abusive Japanese consultants has been a
factor in most if not all of the winning firms (Saripalle 2005: 3-35; India Today,
July 22, 1999).
Not all Indian firms have taken the Deming route: the Tata group has
aimed at America’s Baldridge Award (Domain-b.com, “Boom Time Bonanza”
and “Deming Rush,” December 23, 2003). Similarly, Chinese firms tend to focus
on total quality management rather than the Toyota-style “lean management”
popular in the United States. Moreover, given the historic and geo-politic
tensions between Japan and China, if Japanese quality consultants berated
Chinese applicants the way they berate their Indian clients, riots would erupt.
Thus, the domination of Deming awards by Indian rather than Chinese firms
probably proves little other than a heightened willingness to submit to the
Deming assessment process.
Moreover, despite the great strides made by Indian firms in recent years,
other industry experts remain skeptical that India can compete with China in
manufacturing quality (Financial Times November 29, 2005). Certainly, China’s
extraordinary performance in exporting sophisticated electronic equipment
suggests a formidable level of quality control in many Chinese plants. A survey
by the Manufacturing Productivity Institute of over 400 Chinese manufacturers
that have or are applying for ISO 9001 certification finds that they spend more on
training and information technology, put more emphasis on innovation and
achieve comparable or slightly higher rates of quality than the average American
manufacturing firm (while interpreting survey results and making direct
comparisons can be difficult, Chinese respondents reported slower turn-around
times and much lower rates of worker empowerment, suggesting that they did
not necessarily simply respond to the survey less honestly or more
enthusiastically. Industry Week, November 1, 2004). Similarly, the Japanese
managers of Guangzhou Honda’s export plant report that product quality is
higher than in the comparable American facility (though slightly lower than in
Japan; the level of imported parts also remains high, as it long did in the U.S.
New York Times, June 25, 2005; Financial Express, April 29, 2006). At any rate,
improvement in product quality in both countries has been impressively quick, so
efforts at handicapping soon become dated.
A separate but related claim is that Indian firms are better managed.
While the overall ranking of China in the Global Competitiveness Report
2005-2006 report cited above is a hair above that of India, on “company
operations and strategy” Indian firms rank much higher (30) than Chinese firms
(57). A KMPG International report (2005: 8) cites a Confederation of Indian
Industry report as finding that the return on investment for Indian manufacturing
firms is 19 percent vs. only 14 percent for Chinese firms. Similarly, Yasheng
Huang (2006) notes that Chinese firms, especially private firms, report greater
difficulty in obtaining capital, despite China’s extraordinary savings rate, and
points to the superior ranking of leading Indian firms on a variety of surveys
conducted by the international business press. KPMG and others (2005: 8)
contend that while Chinese firms excel at mass production using standardized
technologies, Indian firms have an advantage in parts requiring intensive inputs
of engineering. This might give Indian firms an advantage in the auto industry,
with its reliance on tacit skills, particularly in niche markets, such as sales to
small developing countries. On the other hand, Balakrishnan et al. (2004) report
disquieting evidence that Indian firms have had a difficult time translating
superior product quality into superior economic performance. The top Indian
firms may be better managed, and may have attained better product quality, but
the range of competent firms is probably wider and deeper in China’s much
larger and more rapidly growing industry.
A related problem affecting both product quality and corporate
management is the quality of the Chinese and Indian workforces. Here again,
there is a massive disparity between the high quality of the best workers and
engineers, and the hundreds of millions of poorly educated workers. A careful
comparison of four-year degrees in engineering, computer science and related
disciplines found that in 2004 India graduated almost as many engineers as did
the United States (112,000 vs. 137,000), while China produced more than three
times as many as India (352,000) (ongoing research led by Gary Gereffi of Duke
University, cited inThe News & Observer, December 13, 2005). In 2004,
Chinese and Indians accounted for one-quarter of all foreign students in the
United States (International Institute of Education, November 14, 2005,
accessed at http://opendoors.iienetwork.org/page/71388/). In 2004, Chinese
students accounted for a quarter of all American PhDs awarded to foreign
students (both overall and in science and engineering), more than students from
the next three countries combined, and more than three times the total awarded
to students from India, the third largest country. Chinese science and
engineering students also outnumber Indian students in Australia, Canada, the
United Kingdom and overwhelmingly so in Japan, Germany and France (NORC
2005: Table 12, p. 52; NSB 2004: Table 11, Appendix Tables 2-40, 2-41, 2-43;
Federal Ministry of Education and Research 2005: 10). Even more impressive
has been the growth of PhD training in many Asian countries, led by China.
Whereas conferral of PhD degrees in science and engineering at American
universities remained essentially flat after the early 1990s at about 25,000 PhDs
per year, in 2001, China awarded over 12,000 PhD degrees in science and
engineering, five times the number awarded a decade earlier. Indian
universities awarded over 10,000 degrees, up about a quarter (National Science
Board 2004: Appendix Table 5-35).
Despite these highly impressive numbers, doubts remain about the
adequacy of the work forces in both countries. Both have huge populations
and have only recently (particularly in the case of China) begun to turn out large
numbers of highly educated professionals, so stock is not as impressive as flow.
Doubts also shadow the quality of instruction and research, particularly at the
higher end. In quantitative comparisons of the world’s leading universities, China
fares poorly and India worse (Yasmeen 2005). On the other hand, Kenney and
Dossani (2005: 10) suggest that the gap in educational quality at the
undergraduate level is only 10-20 percent. At any rate, in both cases, the
perceived gap between the best and least well-educated portions of the
population is huge. The consultancy McKinsey and Company reports that both
countries face serious skills shortages; while China has expanded higher
education more rapidly and is putting more resources into science, engineering,
and English-language training, India retains a big lead in English competence,
internationalization, and geographic flexibility. Even in India, however,
employers report that the English level of the large majority of the population is
inadequate to interact professionally with the rest of the world (McKinsey
Quarterly 2005:4, China’s Looming Talent Shortage; 2005: Special Edition,
Ensuring India’s Offshoring Future). Since the auto industry is a sophisticated
and rising industry in India and China, its larger and better-placed firms, at least,
should be able to attract ambitious and well-trained young employees. As India
and especially China gain greater experience with developing their own models,
many of the current weaknesses, such as lack of experience in product
integration, should gradually dissipate. Nor does the auto industry require the
kind of near-native competency in English and quasi-American accent required
for success in the call centers that have powered India’s prominence in
information technology. On balance, skill shortages are unlikely seriously to
impede the progress of the Indian and Chinese auto industries.
A related issue is whether Chinese and Indian firms will be able to
increase the level of design and research and development work. The Chinese
government, in particular, has been intent on upgrading the capacities of local
firms, and encouraging local subsidiaries of multinational firms to increase R&D
capacities in China. The ratio of R&D to national income has risen sharply in
recent years, reaching 1.35 percent in 2004 (English People’s Daily, March 1,
2005); total research expenditures in China, 60 percent from the corporate
sector, are nearing those of Japan (roughly 80 percent of Japan’s level in 2003)
and growing much more rapidly (NSF 2006: 19, Figure 0-6). The recent
statistical analysis of Rodrik (2006) suggests that Chinese exports are far more
skill and technology intensive than would be suggested by China’s per capita
income. Between pressure from the government and from upstart domestic firms
breaking into the lower parts of the market, Shanghai Automotive, First Auto
Works, Chang’an and other Chinese automotive companies with
foreign-dominated joint ventures have begun to turn their attention to developing
brands and intellectual property independent of their foreign partners (Noble,
Ravenhill, and Doner 2005). Local firms Geely and Great Wall, though still
small, have built development centers with hundreds of engineers, and Geely
claims to invest over 10 percent of revenues in R&D, an extraordinary figure for
a automobile company simultaneously engaged in a massive expansion of
production capacity (average R&D spending in the Chinese auto industry,
including both assemblers and parts suppliers, was 1.4 percent of revenues in
2004. Zhongguo Qiche Gongye Nianjian 2005: 495; according to a survey by
A.T. Kearney, in 2002 American suppliers averaged 2.5 percent, European
suppliers 3.5 percent, and Asian suppliers 4 percent. Michigan Craintech, July
21, 2003). Chery claims to have 1,600 R&D workers (Toyota’s American branch
has only 1,100), including 54 “sea turtles” (staff who have returned from study
and/or work experience abroad) and 51 PhDs (Qirui presentation at innovation
conference sponsored by Zhongguo Qiye Lianhehui [Cec-ceda], April 26, 2006).
The independent auto companies have developed a dizzying area of new
models and engines, initially with considerable help from European design
boutiques and engineering consultancies such as Pininfarina and AVL, but
increasingly on their own (Meiri Jingji Xinwen January 11, 2006).
Initially, some foreign firms apparently built R&D centers largely to
satisfy the Chinese government, leading cheeky foreigners to dub them “PR &D”
centers (Brandt, Rawski, and Sutton 2004: 27, fn. 38), but in recent years, GM,
Delphi, and other foreign firms have engaged in a wave of expansion that
suggests that they are serious about developing increasing local capacities
(Walsh 2003; New York Times, September 13, 2004; Business Week March 29,
2006). A 2005 survey identified 130 foreign auto parts concerns with R&D
facilities in China (Zhongguo Shangbao July 29, 2005). In 2006 Visteon
(formerly the parts arm of Ford) announced that it would move its global
headquarters for electronics to Shanghai, while GM shifted its global electronics
procurement office there (Automotive News, February 27, 2006). Germany’s
Bosch plans to expand its China research staff to 1,400 by 2010 (Automotive
News, March 13, 2006). In March 2006, the American auto supplier Tenneco
announced that an emission-control R&D center under construction in Shanghai
would become one of its three most important research facilities worldwide.
While the center initially would serve Tenneco's customers in China, CEO Mark
Frissora bullishly proclaimed that "If we can expand this capacity faster and
cheaper than in North America, we will engineer everything here…Our vision for
this is it could become the core engineering center in the entire world…You can
engineer basic products a lot cheaper here." (Automotive News March 13,
2006).
Nor is increasing R&D spending in China limited to modifying parts for
global exports. Long-time market leader VW responded to a rapid loss in market
share to new Japanese rivals such as Toyota and Honda and the rise of cheap
Chinese brands by announcing plans to develop from scratch an inexpensive
new model in China specially for the Chinese market; VW will attempt to cut
costs by drastically increasing the use of Chinese parts and designs (Automotive
News, January 9, 2006), and plans to boost exports from China to VW’s other
plants. Similarly, GM has begun exploring the possibility of developing in
China a very inexpensive commercial vehicle for export to other developing
countries (Financial Times, January 11, 2006).
Some of the same trends can be seen in India. At the end of 1998,
Tata Motors, a division of one of India’s leading conglomerates, introduced the
Indica, the first indigenously designed passenger car in India. Tata’s major
market is commercial vehicles, but it has become India’s second largest
producer of passenger cars, and most active in pursuing independent
development. Tata devotes about two percent of its venues to R&D (Tata Motors
Sixtieth Annual Report 2004-2005: 6-7, 31). Market leader Maruti Udyog, in
contrast, proclaims that it will become a regional Asian R&D for Suzuki, but it
devotes only 0.48 percent of revenues to R&D (Maruti Udyog Limited, Annual
Report 2004-2005: 23, 29-30). This compares to 5.0 percent at Nissan and 5.9
percent at Suzuki Motor (calculated from Suzuki Motor, Annual Report 2005: 2,
20). In 2002, number three producer Mahindra & Mahindra, longtime leader of
the farm equipment sector, introduced the Scorpio, a multi-utility vehicle
developed on its own, with help on the engine from the Austrian engine
specialist AVL (The Hindu June 16, 2002). In 2006, it displayed an experimental
hybrid vehicle. At 1.34 percent of revenues, however, M&M’s R&D spending
remains modest (Mahindra & Mahindra 59th Annual Report, 2004-2005: 15).
Thus, while independent design efforts are increasing, they are less numerous
and aggressive than in China.
As in information technology, India’s major importance in the auto
industry may come as a base for R&D by multinationals automakers and parts
firms. General Motors is rapidly expanding its R&D center in India. Delphi
recently announced that bankruptcy would not hinder its rapid expansion in Asia,
and that it expected to have an R&D workforce of 800 in Bangalore by 2008
(Automonitor.co.in November 10, 2005). In late 2005 Germany’s Bosch, the
largest auto parts firm in the world, opened in Bangalore its biggest research and
development operation outside of Germany, and announced that it was scouting
a location for a second facility of equal size. As with Delphi, the new centers will
not be limited to supporting the Indian market: “Bosch India provides
engineering and non-engineering services to the Bosch World such as electronic
control unit development for automotive, industrial, consumer goods and
building technology, as well as IT services, process consulting, mechanical
engineering, IT design, shared services accounting, and
translation/documentation.” (AsiaPulse January 11, 2006).
Most of the “research and development” by foreign firms discussed
above involves modifying foreign products to fit local conditions. Similarly, much
of the R&D by local firms involves increasing absorptive capacities to make it
possible to license or reverse-engineer foreign technology or “co-develop”
technology under the direction of foreigners. In these cases, a degree of
increasing overseas R&D is not inconsistent with a continuing comparative
advantage in R&D on the part of advanced countries. In the case of the auto
industry in China and India, this probably accounts for the large bulk of reported
R&D centers so far. More and more foreign MNCs, in autos as in other industries,
however, are looking to China and India for specific competencies that they can
use throughout their global operations. In the case of India, that means mostly
software and information technology. For China, the primary area, at least for
now, is auto electronics, which can piggyback on the extensive electronics
manufacturing base in China, not all of which is labor-intensive assembly.
Moreover, the firms and governments involved are not just following
markets. They are taking many steps to increase the attractiveness of local R&D.
Ironically, the increasingly aggressive attitude of Western firms toward
protecting intellectual property rights has created a sense of crisis, particularly in
China, and a determination to propel “autonomous” (zizhu) development. Nor
are Chinese firms sticking strictly to incremental innovation: they view
technology breakthroughs such as hybrid cars or even fuel cells as a way of
leap-frogging the deep knowledge accumulated by foreign companies in an
industry still largely dominated by tacit information and incremental innovation
(Noble, Ravenhill and Doner 2005; Noble, forthcoming). Just as world
commerce consists not only (or even primarily) of the comparative-advantage
based trade explained by the Heckscher-Ohlin theorem but of intra-industry
trade among advanced countries with similar factor endowments, so too
increasingly R&D will be distributed not so much on the basis of level of
advancement (per capita GDP), but on an industry-specific basis, with countries
specializing to a greater or lesser degree in the technologies relevant to specific
industries. Of course, this is a long-term trend, and even in, say, auto
electronics, the most cutting edge work is still being done in the US, Japan, or
Europe. For the time being, a large gap is likely to continue to separate Western,
Japanese and Korean auto firms, with their higher rates of R&D spending and
greater commitment to radical innovation, but if current trends are any indication,
that gap will narrow significantly long before China and India begin to approach
the per-capita income levels of Korea, much less Japan and the West.
Some of the obstacles to the continued development of the auto industry
stem from the wider environment, and require broader responses. India and
China have some of the most crowded and polluted cities in the world, and they
have begun working aggressively to tackle the social ills attendant upon mass
motorization. Once relative laggards in pollution control, both have adopted
versions of European emission standards. Major cities have taken the lead, and
by 2010 both China and India plan to apply nationwide Euro-IV standards, the
most stringent currently available (the European Union is expected to adopt the
draft “Euro V” standards in 2008). Both have eliminated lead from automobile
fuels. A more difficult problem is reducing sulfur from gasoline, where China in
particular lags (Huizenga 2004). The Chinese government lowered the sulfur
standard to that of the US in 2005, though soon after the US moved to a much
stricter standard
(http://www.greencarcongress.com/2005/01/sinopec_refinin.html). At any rate,
sulfur in Chinese fuel will not affect exports. Already the new cars coming out of
China and India are relatively clean, and by 2010 they will be at world levels;
compared to water pollution and China’s many other severe environmental
problems, auto emissions are amenable of relatively straightforward solutions,
and the costs can easily be placed on car buyers. Similarly, the emphasis both
Indian and Chinese automakers have placed on exporting to Europe means that
their cars will soon routinely meet demanding international safety and recycling
standards.
More difficult and even more pressing is increasing fuel efficiency.
China and India have entered a period of massive motorization just as fuel
prices have hit new highs (at least in nominal terms) and many experts think
prices will spiral higher. Contrary to the usual arguments that India, as a
democracy, finds it more difficult to take decisions that will arouse opposition
from citizens, India has done a much better job of increasing fuel prices, perhaps
because a higher degree of dependence on imported oil gives it little choice.
Higher fuel prices no doubt help explain why small, energy-efficient cars are
more common in India than in China. Fuel taxes are a rare case where
opposition from China’s National People’s Congress (combined with squabbling
by various units and levels of government over the distribution of revenues) has
prevented the Chinese government from taking resolute action (Zhongguo Jingji
Shibao May 7, 1999; Xinhua November 15, 2005; For time series data on China,
India and other countries, see International Fuel Prices 2005, pp. 6, 35-36,
accessed at
http://www.gtz.de/de/dokumente/en_International_Fuel_Prices_2005.pdf).
Recent policy pronouncements, notably the 11th Five Year Plan, however,
suggest that the Chinese government has become alarmed about pollution,
global warming, and especially energy, and is unlikely to give up on increasing
fuel prices and taxes.
In the meantime, as a politically acceptable, second-best alternative, the
Chinese government has introduced a new fuel efficiency standard for motor
vehicles more demanding than that of the United States, and is likely to stiffen it
further after 2008 (World Resources Institute 2004). The central government has
also revised the sales tax on automobiles to favor smaller cars, and has ordered
Chinese cities to stop using restrictions on small cars as a way to solve their
traffic congestion problems; some cities have fought back by strictly
implementing pollution control standards, which may deter an influx of older
small cars, but in the long run will contribute more to improving emissions
standards than to reducing the number of small cars (Renmin Ribao, January 10,
2006).
If India is ahead in raising fuel prices to reflect international prices, China
has done far better in building infrastructure to accommodate both automobiles
and mass transit, in large part because of the robust increases in tax revenues
stemming from rapid growth and tax reform. China, which trailed India in road
coverage until the 1990s, has engaged in a extraordinary project of highway
construction that will ease congestion and encourage the continued growth of
auto sales; China now possesses the second largest highway network in the
world, and in a decade or so is likely to draw even with the United States. Of
course, increasing the coverage of roads is a mixed blessing. Chinese cities, led
by Beijing, in anticipation of holding the 2008 Olympics, are also expanding rail
and subway lines at a frantic rate, and the central government is stressing the
development of a comprehensive national bus network (Xinhua January 16, 23,
2006; Zhongguo Kechewang January 10, 2006). Particularly in rapidly growing
second and third-tier cities that have not yet constructed significant mass transit
systems, however, there is a great danger of creating land-use patterns
irretrievably dependent on private cars, and thus expensive imported oil.
India has embarked on a significant highway expansion project as well.
The “golden quadrilateral” highway linking India’s four largest cities is scheduled
for completion this year (New York Times, December 4, 2005). Mass transit is
also rapidly improving in Delhi, partly in preparation for the 2010 Commonwealth
Games, and is making progress in several other major cities as well. Overall,
however, India trails far behind China in highways, modern bus systems, and
mass transit (The Hindu, January 17, 2006). Without further efforts, India faces
the worst of both worlds: congestion that slows car growth but leaves commuters
with few alternative means of transportation.
However successful China and India are in dealing with the domestic
consequences of rapid motorization, two implications for the rest of the world are
clear. First, the pressures of rising demand on oil prices are unlikely to abate.
Second, exports of both vehicles and parts from China and India are likely to
concentrate increasingly on small, clean, fuel-efficient and reasonably safe
passenger cars and light commercial vehicles. Indeed, some experts believe
that China and India may become leading users of clean small cars, pushing
global development of new automotive technological technology and
occasionally contributing to it themselves.
Finally, a challenge of special concern to the rest of the world is that
untrammeled investment, particularly in China, is leading to excess capacity that
will spill over to the rest of the world as Chinese companies dump excess cars
and parts the minute domestic demand slows. The sum total of announced
capacity investments in the auto industry, for example, could lead to capacity
rivaling that of the United States in just a couple of years. The Chinese
government emphatically shares this concern, not because it opposes
inexpensive Chinese exports, but because it is concerned that opportunistic new
firms and a glut of commodities could lead to a price war that impedes the efforts
of established companies to increase the quality and sophistication of their
products. Worse yet, it fears that underused factories could saddle China’s
shaky banking system with unpaid loans, and plunge the economy into deflation.
Historically, however, the Chinese government’s repeated calls on companies to
merge and consolidate in to a few small groups have fallen on deaf ears, and the
government has proven unwilling or unable to take the painful steps to prevent
the emergence of excessive capacity in the auto industry. Foreign producers
continue to pile in to China to grab a position in the still-maturing market before
consumer preferences become fixed. Thus, despite the extraordinarily rapid
increase in demand for automobiles, over the last couple of years, prices of
Chinese cars, once far above world market prices, have steadily declined.
The National Development and Reform Commission has redoubled its
efforts to shut down inefficient producers and discourage new investments in the
automobile industry (see for example, the comments of NDRC Minister Ma Kai,
Xinua via Asia Pulse, December 16, 2005). A number of would-be new entrants
have pulled out of the industry for lack of support from the
(government-controlled) banks (Asia Pulse, July 20, 2005). NDRC is unlikely to
persist (much less succeed) in forcing consolidation around a few leading
groups, but recent events suggest it may have a somewhat greater impact in
shutting down the least competitive firms.
It is quite possible, however, that market mechanisms will serve to
alleviate excess capacity even absent a credible exit threat, and on occasion the
NDRC has also suggested that it will rely more on market mechanisms to reduce
capacity (Shijie Jingji Baodao via Sina.com, January 6, 2006) Exuberant
investments at the end of the 1990s and the turn of the century responded to an
extraordinary burst in demand and a ballooning of profit rates. In the past two
years, despite still strong growth in demand, profit rates in the auto industry have
declined sharply, due both to excess capacity and spiraling costs of oil, steel and
other inputs. In 2005, profitability in autos slid below the average for
manufacturing industries for the first time (Shanghai Daily January 28, 2006).
Already, some foreign firms are cutting back investments in the face of declining
market share and sagging profitability. The most prominent case is Volkswagen.
Long China’s market leader, it has lost a large chunk of market share to rapidly
expanding Japanese and Korean rivals such as Hyundai, Honda, and Toyota. In
response, it announced an “Olympic Program” that will scale back future
capacity increases after 2008 (Auto Asia October 19, 2005).
Excess capacity remains a serious problem, as it is throughout the
global auto industry, but it may be easier to respond to in China than in more
advanced countries with stagnant or even declining markets or surging imports:
since demand will continue to grow, reduction in future investments may be
enough to whittle back the overhang of capacity without requiring the far more
difficult task of forcing or allowing existing producers to shutter factories. Falling
prices represent the effects not just of excess capacity but of rapid increases in
the productivity of Chinese producers. Foreign producers will face an increasing
competitive threat from China, but it is likely to stem from increases in real
capabilities, not solely or even mainly desperate dumping to alleviate excess
capacity.
The rise of the Chinese and Indian auto industries: Implications for other
developing countries
It is easy enough to understand why workers and engineers in advanced
countries are nervous about the muscular growth of China and India in recent
years: imports from China have jumped, India looks to be repeating China’s
success, and outsourcing from both countries, not least in automobiles, may well
soar. Even if the overall gains from trade are positive, the costs of adjustment
could be substantial for the workers involved. What about other developing
countries, whose wage levels are much closer to those of China and India?
Eichengreen and Wang’s (forthcoming 2006: 29-30) study of trading patterns
from 1990 to 2003 shows that for poorer countries, crowding effects may
overwhelm positive growth linkages, particularly in auto parts: “Countries
specializing in the production and export of components, capital goods and raw
materials feel positive effects from China’s growth, while countries specializing
in the production of consumer goods feel negative effects. The pattern of FDI
spillovers is broadly similar…This positive response is shaped by proximity; in
particular, Asian countries located close to China have a geographical and cost
advantage when attempting to capitalize on these supply chain relationships.
But this response also depends on industrial specialization and hence on past
policy. For example, countries producing electronics, an industry that lends itself
to production fragmentation, are better positioned than producers of motor
vehicles, where for policy-related reasons, if not also because of technology,
there is less scope for exploiting these international complementarities.”
The degree to which these results hold in the future will depend in
significant measure on how quickly Chinese (and Indian) firms can move into
markets now dominated by firms from advanced countries, and the speed with
which outward FDI from China and India—virtually nonexistent in the period
studied by Eichengreen and Wang—increases. Even in the short term, however,
it is important to place these results in perspective: China (and India) remain
small players in international trade, and other factors are much more important
in determining the development of the auto industry in developing countries.
The developing economies most likely to face the brunt of intensified
competition from China and India (and indeed liberalization of world auto
markets more generally) are the four large economies of Southeast Asia; others
include Pakistan and Taiwan. Yet with the partial exceptions of the Philippines
and Pakistan, auto industries are flourishing in all of those countries, and in none
of them is competition, whether direct or direct, from China and India a major
concern. Economic growth has been respectable since the financial crisis, if not
quite as rapid as before, or as fast as in China and India over the last decade.
Growth rates in ASEAN generally have ranged from four to seven percent per
year, with some pickup in 2003-2005, especially in industrial growth.
The most obviously flourishing case is Thailand, which threw open its
doors to multinational investors and regional trade and developed plans to
become “the Detroit of Asia” (back when that appellation seemed more
propitious than it might today). After the Asian financial crisis of 1997-98,
Thailand seized on exports as the savior of its auto industry, and it has never
looked back. Production of motor vehicles fell from 560,000 in 1996 to 158,000
in 1998, but by 2005, production is estimated to have reached 1.15 million units,
of which about 450,000 units were exported (JAMA 2005); 2005 estimates from
Asahi Shinbun January 12, 2006).
Traditionally, Thailand has specialized in small pickups, for which it is
the second most important market and production location after the United
States, but the proportion of passenger cars is gradually increasing, hitting
one-third in 2004. The rise of the passenger car market could make Thailand
somewhat more vulnerable to competition from China and India. Thailand’s auto
industry has enjoyed an influx of direct foreign investment, mostly from Japan
but also from GM and Ford of the US. Indeed, Thailand has no independent
assemblers, and virtually all significant locally-owned parts firms have been
acquired by foreign firms. In theory, those firms are more footloose than
locally-owned firms, but in the current boom there is no likelihood of significant
disinvestment. External tariffs on autos and parts remain high, but Thailand has
entered into a dizzying array of free trade agreements, starting with ASEAN’s
AFTA agreement, and including China, India, Australia and Japan.
More surprisingly, the Indonesian auto industry has also performed
reasonably despite the devastation caused by the Asian financial crisis, and the
relatively slow, consumption-based growth since then. Auto production
collapsed from 389,000 units in 1997 to just 58,000 in 1998, but finally
surpassed its pre-crisis peak in 2004 with production of 498,000 units (JAMA
2005; production data for 2005 are not yet available, but according to the
Indonesian economics ministry, auto sales, the overwhelming bulk of which are
accounted for by domestic assembly, increased by over 10 percent in 2005).
Foreign investment, while much less robust than in Thailand, has increased to
support the expansion of production. Foreign investment in the automotive
sector in 2005 looked set to surpass 2004’s record of about USD 400 million
dollars (Asia Pulse December 16, 2005). More surprisingly, foreign assemblers
led by Toyota have begun to export significant numbers of vehicles from
Indonesia (66,000 units from January to September 2005; Asia Pulse October
20, 2005). Trade liberalization began in earnest after the financial crisis, and
Indonesia has joined the 0-5 percent tariff regime of AFTA. Though the
industry is largely limited to assembly and the skill base is not deep, Indonesia’s
population of over two hundred million virtually assures the continuation of a
significant auto industry.
Malaysia was not as badly affected by the Asian financial crisis as
Indonesia, but recovery also was less dramatic, partly because the popping of
the information technology bubble in 2001 hit electronics-dependent Malaysia
hard: 2004 production of 472,000 units barely surpassed the previous peak of
457,000 units hit in 1997 (JAMA 2005; in 2005, sales increased 13 percent).
The main problem in Malaysia is what to do with the national champion car
companies Perodua (now controlled by Toyota affiliate Daihatsu) and especially
state-controlled Proton, both of which are saddled by political interference and
policies of ethnic preference and that have stymied the growth of a competitive
parts industry. Long a symbol of Malaysia’s industrial ambitions, Proton cannot
compete without heavy protection. Regional trade integration poses a grave
threat to an independent Proton, which lacks the funds to develop new models.
The signing of an FTA agreement with Japan in December 2005 provided an
interim solution that sacrifices parts to save Proton. Malaysia agreed to eliminate
immediately tariffs on parts kits imported from Japan, while keeping protection of
larger cars until 2010 and cars with engines under two liters until 2015 (AFP,
June 25, 2005; Kyodo News, December 14, 2005).The government has
canvassed an array of potential partners (saviors) for Proton, but its
unwillingness to relinquish majority control sank a deal with VW; talks continue
with Peugeot and a variety of Chinese firms.
The Philippines was even less affected by the financial crisis than
Malaysia, but it has never developed a significant assembly industry, producing
only 110,000 motor vehicles on the cusp on the crisp in 1997, and just 45,000 in
2003 (Jidousha Nenkan 2004 nenban: 477). In recent years, it has used the
lowering of tariffs within ASEAN to develop a comparative advantage in a few
parts and components, including some simple auto electronics, and it actually
exports much more than Malaysia, with its large passenger car assembly
industry. Both Toyota and Ford have made major investments, and Toyota
exports transmissions, especially to its other assembly sites in ASEAN. In
November, 2004, Japan and the Philippines signed a preliminary agreement on
an FTA that would have progressively eliminated tariffs on automotive products
by 2010. In the face of vehement objections from Ford and other Western auto
firms that the agreement would have violated the understanding under which
they had invested, negotiations between the Philippines and Japan stalled (Wall
Street Journal, June 26, 2005; JETRO, December 27, 2005).
Through all these Southeast Asian cases run two few simple themes:
First, strong growth in demand for autos (though not as strong as in China and
India) has kept the regional auto industry growing and relatively optimistic
despite the dislocations attendant upon liberalization. Second, China and India
remain but a distant concern, greatly overshadowed by debates over regional
integration and FTAs with Japan and other countries.
These themes are supported by data on trade in auto parts (which in the
case of the ASEAN 4 generally dwarf trade in assembled vehicles): Chinese and
especially Indian exports to the big four ASEAN countries remain relatively
limited in the context of overall ASEAN auto trade. ASEAN exports to major auto
markets have not suffered any obvious crowding out by Chinese or Indian parts.
Between 1996 and 2003, ASEAN exports to the major auto markets—the United
States, the EU 15, and Japan--increased, in most cases substantially (the only
exceptions are Philippine exports to the US and EU, which stagnated). Exports
to China also increased substantially, but remained far below those of the other
major markets. This pattern contrasts sharply with that of Korea, which grew
much more dependent upon the Chinese market as sales of Hyundai and Kia
vehicles assembled in China zoomed (see Figure 6, Exports of auto parts from
South Korea and the four large ASEAN countries).
It is true that Chinese exports expanded rapidly in 2003 and 2004 (and
2005, though detailed data are not yet available), and in some cases China
came to run an overwhelming surplus in auto parts with its Southeast Asian
trade partners. In the context of the total trade of ASEAN, however, the amounts
remained modest. Using another data set that includes 2004 (but covers a
narrower range of parts—those in the 784 industrial code covering general auto
parts), we can see that while China came to run lopsided surpluses with
Indonesia and Malaysia, the absolute amounts involved were quite modest at
about 70 million dollars in Chinese exports to each of the countries, and
accounted for only a tiny fraction of China’s expanding exports (see Figure 7,
China’s trade in auto parts). Auto trade with Philippines remained minuscule.
In the case of Thailand, Chinese exports expanded rapidly, but imports
expanded even more quickly, and China’s one-time surplus turned into a
bilateral deficit. Even in the case of these two burgeoning auto powers,
however, trade remained extremely limited: in 2004, China imported about 49
million dollars of general auto parts from Thailand, and exported about 30 million
dollars parts—only about 0.68 percent of China’s 4.4 billion dollars in exports of
general auto parts.
Indian auto trade with the ASEAN four was even more limited (see
Figure 8, Indian auto trade overview). At first glance this might seem surprising:
India has a large, rapidly growing and highly protected market, from which its
companies are aggressively exporting vehicles: in 2004, India exported
passenger cars worth more than twice China’s car exports (727 million dollars vs.
317 million dollars), but where China imported 4.6 billion dollars worth of
passenger cars, India imported just 7,500 cars, worth only 98 million dollars.
India’s parts trade remains far more limited, however, and its vehicles mostly
flow to Europe and developing country markets in which Japanese brands are
less well established than in Southeast Asia. An examination of India’s trade in
“other auto parts” in 2000 and 2004 shows an overwhelming reliance on imports
from Japan, and limited trade with other countries. Malaysia showed surprising
strength, but overall the numbers remained small. This could certainly
change—Toyota announced that it would export 140,000 gear boxes from India
to Southeast Asia in 2006, for example (Asia Pulse February 3, 2006) —but the
base is small.
The one exception is the dramatic increase in parts trade with Thailand:
only about a million dollars in goods passed each way in 2000, but by 2003 India
imported 18 million dollars worth of parts from Thailand while exporting almost 7
million dollars worth. In October 2003 India signed free trade agreements with
both Thailand and ASEAN as a whole, including an “early harvest” provision
leading to rapid cuts in many auto parts tariffs. In 2004 “other auto parts”
imports from Thailand shot up to 51 million, while exports more than doubled to
16 million dollars.
This increase occasioned the only significant case of trade friction to
erupt between China, India and Southeast Asia in the auto parts area—and the
nervous party is not the ASEAN countries, but India, whose auto parts
executives feared that high tariffs on steel and other imports handicapped them
in competing against the relatively open and efficient markets in Thailand and
potentially other ASEAN and Persian Gulf states with which India is negotiating
FTAs. The Indian government pushed for stiff rules of origin and value-added
requirements to prevent Japanese and Korean parts from slipping in via
Southeast Asia, and continued to work on decreasing tariffs on inputs to allay
the pain, but concern about lost revenues impeded rapid cuts (Hindu Business
Line August 20, 2004, October 26, 2005; Dow Jones Newswire, October 21,
2005). Indian auto-related firms also petitioned the government for anti-dumping
relief against imports of Thai and Chinese bus and truck tires (not treated as
“auto parts” in the data given in this paper), and expressed concern about the
turn-around in the trade balance with China in the first two-thirds of 2005, when
imports from China suddenly doubled India’s exports to China (Rediff.com
January 17, 2006; note that these are preliminary data, and not necessarily
compatible with the UN Comtrade data used elsewhere in this paper; in 2005,
China emerged as India’s largest source of imports and within two years is
expected to surpass the United States as its largest trade partner. Reserve Bank
of India, 2006). These incidents serve as reminders that trade patterns may
change rapidly as the Chinese and Indian auto industries develop, but as of
mid-2006, the most important finding remains the limited nature of Chinese and
Indian auto trade, particularly in Southeast Asia, and the relatively smooth
progress of gradual trade liberalization throughout the region.
The limited presence of China and India is even more evident in direct
foreign investment. Globally, DFI is a crucial component of the auto industry.
Thailand’s transformation into the “Detroit of Asia,” for example, has been
accomplished almost entirely by foreign-owned firms, and Indonesia’s modest
recent resurgence is attributable in good measure to Toyota’s takeover of the
manufacturing assets of its former joint venture partners. And of course the auto
sectors in India and especially China have received huge amounts of foreign
investment. Outward foreign investment from China and India has been far more
limited, though it is beginning to pick up pace. Chinese and Indian firms have
begun to establish assembly operations in other developing countries, as seen
in agreements reached in 2005 by Malaysia’s Alado/Information Gateway
groups to assemble under license vehicles by the independent Chinese firms
Chery, Geely, and Changan. Geely originally hoped to sell tens of thousands of
units in Malaysia, where auto prices are much higher than in China, and also use
Malaysia as a base for exports to other ASEAN countries at tariffs of 5 percent or
less, as well as to other countries with right-hand drive, such as Australia, the
UK and potentially India. In blithe defiance of WTO norms, the Malaysian
government initially insisted that Alado export its entire production. In the end,
Geely agreed to export 80 percent of output at USD $5,000-$6,000 per unit, with
initial content of 40 percent (barely more than the cost of assembly), rising to 60
percent within a year. By agreeing to use idle assembly facilities, Geely
assuaged the government’s concerns about excessive capacity, and reduced its
own investments to virtually nothing (Diyi Caijing Ribao February 6, 2006; The
Edge Daily, March 29, 2006). Among the possible partners for troubled national
champion Proton are Chinese companies including Chery. According to one
proposal, each country would assemble cars for the other, though whether
Proton cars would be competitive in China remains to be seen (Financial Times,
March 30, 2006; Reuters May 6, 2006).
The only prominent parts investment has not been from China or India to
Southeast Asia, but from India to China. Bharat Forge, the world’s second
largest forging company, announced that it would acquire the forging division of
China’s largest auto conglomerate, First Auto Works (Reuters December 8,
2005). These are small and unusual examples, however. Tata Motor has
explored assembly investments in Thailand, but overall Tata and Bharat Forge
are more interested in investing in Korea, Germany and possibly the United
States, where they can acquire and develop the brands, skills, distribution
channels and experience necessary to expand sales to advanced markets. The
same is true of China, where industry leader Wanxiang, a maker of universal
joints, has bought companies and established operations in North America,
Australia, England, and Germany and expressed interest in investing in India,
but has made no moves to enter Southeast Asia.
In many other areas, the presence of Chinese and Indian auto firms
remains limited. Auto technology is still overwhelmingly dominated by Western,
Japanese and (to a much lesser extent) Korean firms. The increasing focus of
Indian and Chinese firms--and the Chinese and Indian operations of Western
firms such as GM--on small, inexpensive cars and commercial vehicles may
exert some mild downward pressure on prices, which could threaten some local
producers, but also provide new opportunities for households and small
businesses. On balance, though, the impact for good or ill remains limited.
Surprisingly, even the auto industries of Pakistan and Taiwan, the
economies most likely to be concerned about the rise of China and India, have
remained relatively unaffected. If anything, the impact has been positive. Until
recently, Pakistan has maintained a classic protected auto enclave, in which a
swarm of assemblers produce a tiny number of vehicles in uneconomical
batches behind high tariff walls. Since 2000 the government has gradually cut
tariffs and promoted liberalization, and an increase in industrial and GDP growth
has created greater confidence. Still, the auto industry (including Japanese
investors, who account for 90 percent of assembly) remains ardently opposed to
decreasing protection (The News International May 9, 2005; Dawn, January 15,
2006). In addition, Pakistan has not yet explicitly granted Most Favored
National trading status to India, and despite India’s size and propinquity, it is not
in Pakistan’s top 10 lists of export or import partners (JETRO country data, in
Japanese). China is a major source of imports, but imports of automotive
products remain limited. On balance, though, the growth of China and India
reinforces the sense that with proper reforms Pakistan, too, could develop an
auto industry. Ironically, the extreme underdevelopment of the auto industry to
date—in 2000-2001 Pakistan produced fewer than 40,000 cars to support a
population of over 150 million (UNESCAP 2002: 86)—may well provide
ammunition to the many critics of current policies, and help them overcome
concerns about being overwhelmed by foreign automobile industries, among
which China is still a minor player.
Similarly, the eruption of the Chinese auto industry has proved more
boon than bane to Taiwan, which began a slow process of market opening for
autos in 1986. Liberalization and the stagnation of the island’s car market at
about 500,000 units per year pushed manufacturers to look outward for
opportunities. Parts firms have succeeded in expanding exports of automotive
components, mainly wheels, bumpers and other items for the aftermarket,
despite the rise of competitors in the mainland, and indeed Taiwan parts firms
also have established hundreds of subsidiaries in the mainland to produce
lower-level, labor-intensive items. Taiwan’s leading assemblers, particularly
the traditional champion Yulon (Yulong) and its sister company China Motors,
have made significant investments, in conjunction with their Japanese partners,
in southeast China. Along with Kuozui (Guorui), the local assembler of Toyota
vehicles, they have also developed design centers specializing in the
modification of Japanese cars for the Asian region, particularly mainland China.
Political tensions notwithstanding, Taiwan’s auto firms not only have adapted
smoothly to the rise of China but have pinned much of their strategy on China,
and recently they have become interested in India as well.

CONCLUSION
How much pressure are the newly risen Chinese and Indian auto
industries likely to exert on other developing countries, particularly in their
immediate vicinity? The answer is something of a paradox. On the one hand,
the impact to date has been remarkably limited. Direct foreign investment from
China and India to other developing countries has just started and barely rates a
blip on the global radar, and trade flows have not been much greater. The one
exception is Korea, whose growing dependence on the Chinese market does
create some unease at home, but which has grown so robustly in North America
and other world markets that concerns remain muted. Similarly, the only
significant trade friction in the auto industry we have identified involves Thailand,
the Korea of the 2000s, and the complainant is India, not Thailand. The Chinese
and Indian auto industries remain distinctly junior players in a global industry
firmly dominated by Japanese, Korean, and Western firms.
On the other hand, the growth in the Chinese auto industry, and more
recently the Indian industry, truly has been remarkable, and the huge
populations, low car penetration rates, and rapid growth of the two countries
suggest that they may well grow into global powers. Exports, particularly from
China, have shot up over the last couple of years, and appear to be on the cusp
of a major expansion. Skeptics abound, of course, and they note that
straight-line projection is hazardous to one’s predictive health. Doubts about
China’s capacity to sustain growth and withstand its social, economic and
ecological consequences are especially common. This study of the automobile
industry suggests a different and rather more bullish interpretation, particularly
when it comes to China. First, policy challenges are not limited to China (on
India, cf. Kochhar et al. 2005), and at the moment China is far ahead not only in
production (twice that of India), exports (more than ten times those of India), and
physical infrastructure, but also in production of engineers and skilled workers.
The top Indian firms may be better managed and more profitable, but the
Chinese industry is broader, deeper and exposed to greater international
competition. Moreover, as their similar scores on a number of international
rankings of reviewed above suggest, India shares many of China’s problems,
including inefficient banks, inadequate legal systems, and deep-seated
inequality between urban coastal regions and rural heartlands. Second, despite
these daunting policy challenges, a crucial psychological barrier has been
passed in both countries: a broad consensus has emerged that reform is
necessary and possible, and that the growth payback from reform will be high. In
both countries, that consensus has survived turnover of the national political
leadership. Thus, while a series of obstacles looms, the skill, confidence and
determination with which Chinese and Indian leaders are tackling them have
also risen sharply.
These trends in the car and car parts sector present a startling contrast
to developments in textiles and electronics assembly, where Chinese firms have
grabbed market share from other developing countries and established a
dominant position in the world economy, especially since the elimination (in
principle, at least) of quotas on textile exports. Industrial characteristics
account for most of the difference. The auto sector is far larger—the single
largest industry in the international trading system—and much of it is skilled-labor
and capital intensive. The tacit and incremental character of technological
innovation in autos militates against the rapid entry of new competitors seen in
electronics, while the numerous incentives for local production (transport costs;
differences in tastes, taxes, and regulations; just-in-time production systems;
after-service care), make it difficult for auto makers and even many parts firms to
rely solely on exports. Thus it is not surprising that even the dramatic expansion
of market demand and production capacities in China and India as yet has
exerted only a modest influence on the world industry. Perhaps more
surprising, even that limited impact has been felt far more deeply in the United
States and Western Europe, where worries about outsourcing and cheap
imported parts run deep, than in the developing countries near China and India.
If the impact of China and India has been modest to date and is unlikely
in the short-to-medium term to increase greatly, there is even less cause than
usual for other developing countries to resort to protection or to slow the pace of
liberalization. Nor is there any particular need to worry about the quality of
Chinese and Indian vehicles and parts: heightened concerns about pollution and
energy efficiency are pushing both countries to approach world frontiers in
emissions controls and fuel efficiency, and the recent move to expand exports to
Europe will force Chinese and Indian firms to meet advanced standards of crash
resistance and recyclability.
To be sure, the push of Chinese and Indian producers into surrounding
regions could have some minor and indirect effects, not least the upward
pressure on prices of raw materials, with complex implications for various
developing countries, depending on their resource bases. The increasing
concentration of China and India on compact cars and commercial vehicles
could significantly depress prices of those vehicles in the developing countries to
which they are initially being exported, with consequences both positive (access
to lower cost inputs for poor households and small local businesses) and
negative (heightened competition for local firms, increasing congestion). The
impact of even this mixed blessing, however, is likely to be small. Perhaps more
important is the learning effect: other developing countries can see how once
stifled economies have come alive in both China and India. They can also
learn some specifics—the importance of developing appropriate credit systems
and legal criteria for repossession of vehicles to prevent the expansion of the
auto industry from leading to an eruption of dud loans, as it has in China, or the
need to price petrol realistically and develop mass transit before private
automobiles become ubiquitous and entrenched. But most of all, for the next
few years, at least, they can stop worrying about the still modest influx of
Chinese and Indian cars and parts, and focus on more fundamental issues of
economic management.
Figure One: Leading auto parts export and import countries

Source: World Trade Organization (WTO), International Trade Statistics, 2005


Figure Two: Auto parts exports of selected economies

Source: World Trade Organization (WTO), International Trade Statistics, 2005


Figure Three: Chinese production of motor vehicles, 1991-2005

China's Motor Vehicle Production, 1991-2005

TOTAL Trucks Buses Sedans


1991年 708,820 452,023 175,742 81,055
1992年 1,061,721 626,414 272,582 162,725
1993年 1,296,778 774,868 292,213 229,697
1994年 1,353,368 785,876 317,159 250,333
1995年 1,452,697 721,822 405,454 325,461
1996年 1,474,905 688,614 395,192 391,099
1997年 1,582,628 659,318 435,615 487,695
1998年 1,628,026 661,701 459,025 507,861
1999年 1,831,596 756,312 509,179 566,105
2000年 2,068,186 751,699 709,041 607,455
2001年 2,341,528 803,076 834,927 703,525
2002年 3,253,655 1,092,456 1,068,347 1,092,762
2003年 4,443,522 1,228,157 1,177,469 2,037,865
2004年 5,070,452 1,514,869 1,243,022 2,312,561
2005年 5,707,000 2,767,700

Source: 中国汽 工 年 , 中国汽車工 年 2005:478


2005: 中国汽 工 会, via press reports
Figure Four: Indian production of passenger cars, 1994-2005

Source: Automotive Component Manufacturers Association of India (ACMA),


Industry Statistics, 2005 (vehicle industry)
Figure Five: Indian auto parts production

AUTO COMPONENT INDUSTRY PRODUCTION


(IN US $ MLN.)
9,000

8,000

7,000

6,000

5,000

6,730
4,000

5,430
4,470
3,000

3,965
3,894
3,278

3,249
3,008

2,000

1,000

-
1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 200
* Estimated

Source: Automotive Component Manufacturers Association of India (ACMA),


Industry Statistics, 2005 (auto component industry)
Figure Six: Exports of auto parts from South Korea and four large ASEAN
countries

Exports of auto parts from South Korea and four main ASEAN countries
Years
1996 1997 1998 1999 2000 2001 2002 2003
Korea
Global exports 3,049,149,618 3,450,189,724 3,439,255,100 3,851,039,746 3,998,371,034 4,200,549,175 4,878,472,626 6,863,077,297
To USA 501,071,239 537,380,988 642,469,682 828,658,988 914,039,242 1,048,602,579 1,368,678,635 1,478,717,202
Exports to USA/ total exports (percent) 16.43 15.58 18.68 21.52 22.86 24.96 28.06 21.55
To EU 15 544,588,552 525,845,079 579,319,322 740,727,818 671,429,016 670,216,694 712,963,879 990,609,144
Exports to EU 15/ total exports (percent 17.86 15.24 16.84 19.23 16.79 15.96 14.61 14.43
To Japan 165,636,001 201,754,471 168,422,911 231,893,898 268,608,081 289,956,785 344,850,771 444,469,999
Exports to Japan/ total exports (percent 5.43 5.85 4.90 6.02 6.72 6.90 7.07 6.48
To China 35,274,671 43,247,235 37,821,845 70,808,294 106,596,758 119,925,134 266,977,409 1,146,535,966
Exports to China/ total exports (percent) 1.16 1.25 1.10 1.84 2.67 2.85 5.47 16.71

Indonesia
Global 424,979,864 476,809,492 505,307,134 638,426,989 830,504,961 831,619,810 990,526,749 1,194,390,867
To USA 29,804,861 49,631,185 55,243,350 69,730,423 82,692,089 79,871,619 93,882,416 104,316,333
Exports to USA/ total exports (percent) 7.01 10.41 10.93 10.92 9.96 9.60 9.48 8.73
To EU 15 52,296,904 40,116,653 60,773,553 74,612,665 80,490,262 71,769,926 87,480,707 116,503,744
Exports to EU 15/ total exports (percent 12.31 8.41 12.03 11.69 9.69 8.63 8.83 9.75
To Japan 66,438,686 69,736,087 103,071,587 117,386,724 183,172,854 183,764,176 236,847,503 302,363,861
Exports to Japan/ total exports (percent 15.63 14.63 20.4 18.39 22.06 22.1 23.91 25.32
To China 1,991,712 3,411,933 1,834,909 3,619,344 4,408,326 3,942,669 4,798,160 12,547,903
Exports to China/ total exports (percent) 0.47 0.72 0.36 0.57 0.53 0.47 0.48 1.05
Malaysia
Global 0 289,019,906 329,976,914 395,543,631 552,570,998 516,983,259 581,821,199 592,612,833
To USA 0 34,202,026 55,477,869 53,863,222 72,985,178 80,500,866 106,469,063 80,898,334
Exports to USA/ total exports (percent) 0 11.83 16.81 13.62 13.21 15.57 18.30 13.65
To EU 15 0 35,271,491 65,843,692 75,793,557 82,568,074 78,720,717 73,551,735 71,015,279
Exports to EU 15/ total exports (percent 0 12.20 19.95 19.16 14.94 15.23 12.64 11.98
To Japan 0 43,436,892 38,879,547 38,556,592 52,439,238 40,468,840 58,558,050 71,905,326
Exports to Japan/ total exports (percent 0 15.03 11.78 9.75 9.49 7.83 10.06 12.13
To China 0 1,070,157 2,195,095 6,864,870 9,921,956 12,554,932 16,392,437 25,542,590
Exports to China/ total exports (percent) 0 0.37 0.67 1.74 1.80 2.43 2.82 4.31
Philippines
Global 0 0 0 0 1,219,134,477 1,176,211,951 1,355,119,684 1,543,273,353
To USA 0 0 0 0 360,397,104 326,773,551 348,195,251 354,615,962
Exports to USA/ total exports (percent) 0 0 0 0 29.56 27.78 25.69 22.98
To EU 15 0 0 0 0 240,026,366 257,779,493 240,154,944 263,735,286
Exports to EU 15/ total exports (percent 0 0 0 0 19.69 21.92 17.72 17.09
To Japan 0 0 0 0 322,215,960 308,268,056 384,246,584 458,298,358
Exports to Japan/ total exports (percent 0 0 0 0 26.43 26.21 28.36 29.70
To China 0 0 0 0 7,272,117 6,951,404 14,345,613 8,815,453
Exports to China/ total exports (percent) 0 0 0 0 0.6 0.6 1.1 0.6
Thailand
Global 0 0 0 963,535,035 1,291,388,280 1,278,254,443 0 2,228,589,858
To USA 0 0 0 249,960,331 242,472,761 179,784,040 0 286,963,180
Exports to USA/ total exports (percent) 0 0 0 25.94 18.78 14.06 0 12.88
To EU 15 0 0 0 132,523,885 121,334,120 130,983,838 0 177,466,340
Exports to EU 15/ total exports (percent 0 0 0 13.75 9.40 10.25 0 7.96
To Japan 0 0 0 247,220,506 320,590,860 314,356,522 0 508,880,853
Exports to Japan/ total exports (percent 0 0 0 25.66 24.83 24.59 0 22.83
To China 0 0 0 16,275,578 15,491,784 23,406,204 0 32,455,400
Exports to China/ total exports (percent) 0 0 0 1.69 1.20 1.83 0 1.46

Source: UN Comtrade data


Figure Seven: China’s trade in auto parts
Period Flow Reporter Partner Trade Value
1996 Import China World $1,102,580,788
2000 Import China World $2,127,820,721
2003 Import China World $6,266,681,716
2004 Import China World $7,341,646,449

1996 Export China World $383,451,103


2000 Export China World $1,129,432,145
2003 Export China World $2,437,397,771
2004 Export China World $4,430,035,649

1996 Import China Indonesia $205,767


2000 Import China Indonesia $1,171,282
2003 Import China Indonesia $6,517,446
2004 Import China Indonesia $24,587,829

1996 Export China Indonesia $6,932,234


2000 Export China Indonesia $21,552,791
2003 Export China Indonesia $34,427,287
2004 Export China Indonesia $61,704,751

1996 Import China Malaysia $412,840


2000 Import China Malaysia $4,008,196
2003 Import China Malaysia $9,824,735
2004 Import China Malaysia $7,025,672

1996 Export China Malaysia $5,375,511


2000 Export China Malaysia $10,967,777
2003 Export China Malaysia $31,629,888
2004 Export China Malaysia $67,199,999

2000 Import China Philippines $15,153


2003 Import China Philippines $257,309
2004 Import China Philippines $3,024,156

1996 Export China Philippines $5,300,705


2000 Export China Philippines $7,682,698
2003 Export China Philippines $17,308,745
2004 Export China Philippines $35,460,322

1996 Import China Thailand $1,300,437


2000 Import China Thailand $4,451,728
2003 Import China Thailand $26,349,340
2004 Import China Thailand $49,000,354

1995 Export China Thailand $9,857,581


1996 Export China Thailand $7,571,789
2000 Export China Thailand $2,897,870
2003 Export China Thailand $14,864,918
2004 Export China Thailand $30,424,035

Source: UN Comtrade data


Figure Eight: Indian auto trade overview
Indian auto trade: overview
Period Trade Flow Reporter Partner Commodity Code Trade Quantity Commodity Description Trade Value
1988 Import India World S3- 781 558 PASS.MOTOR VEHCLS.EX.BUS 「up to 9 passengers] 5,993,622
2000 Import India World S3- 781 1,602 PASS.MOTOR VEHCLS.EX.BUS 16,848,538
2004 Import India World S3- 781 7,521 PASS.MOTOR VEHCLS.EX.BUS 98,859,998

1988 Export India World S3- 781 2,714 PASS.MOTOR VEHCLS.EX.BUS 14,915,201
2000 Export India World S3- 781 23,899 PASS.MOTOR VEHCLS.EX.BUS 103,613,201
2004 Export India World S3- 781 195,215 PASS.MOTOR VEHCLS.EX.BUS 727,545,598

1988 Import India World S3- 782 52 GOODS,SPCL TRANSPORT VEH [i.e. trucks, speciality veh] 2,688,388
2000 Import India World S3- 782 139 GOODS,SPCL TRANSPORT VEH 7,885,210
2004 Import India World S3- 782 183 GOODS,SPCL TRANSPORT VEH 8,722,869

1988 Export India World S3- 782 1,295 GOODS,SPCL TRANSPORT VEH 17,559,904
2000 Export India World S3- 782 23,392 GOODS,SPCL TRANSPORT VEH 69,551,620
2004 Export India World S3- 782 19,825 GOODS,SPCL TRANSPORT VEH 157,436,444

1988 Import India World S3- 7831 17 Pub- transport pass vehcl [i.e. Buses] 275,230
2000 Import India World S3- 7831 46 Pub- transport pass vehcl 594,541
2004 Import India World S3- 7831 4 Pub- transport pass vehcl 53,823

1988 Export India World S3- 7831 880 Pub- transport pass vehcl 18,193,366
2000 Export India World S3- 7831 5,483 Pub- transport pass vehcl 66,131,674
2004 Export India World S3- 7831 7,761 Pub- transport pass vehcl 137,554,062

1988 Import India World S3- 784 24,901,626 PARTS,TRACTORS,MOTOR VEH [Parts, incl. SKD, CKD kits] 167,655,744
2000 Import India World S3- 784 51,748,880 PARTS,TRACTORS,MOTOR VEH 281,490,236
2004 Import India World S3- 784 77,275,458 PARTS,TRACTORS,MOTOR VEH 662,027,774

1988 Export India World S3- 784 33,669,680 PARTS,TRACTORS,MOTOR VEH 86,534,672
2000 Export India World S3- 784 114,134,697 PARTS,TRACTORS,MOTOR VEH 362,105,219
2004 Export India World S3- 784 215,814,121 PARTS,TRACTORS,MOTOR VEH 749,153,447

2000 Import India World S3- 784 51,748,880 PARTS,TRACTORS,MOTOR VEH 281,490,236
2000 Export India World S3- 784 114,134,697 PARTS,TRACTORS,MOTOR VEH 362,105,219
2000 Import India China S3- 784 689,249 PARTS,TRACTORS,MOTOR VEH 4,544,998
2000 Export India China S3- 784 93,419 PARTS,TRACTORS,MOTOR VEH 653,639
2000 Import India Indonesia S3- 784 195,452 PARTS,TRACTORS,MOTOR VEH 1,520,717
2000 Export India Indonesia S3- 784 924,428 PARTS,TRACTORS,MOTOR VEH 3,774,443
2000 Import India Japan S3- 784 24,640,850 PARTS,TRACTORS,MOTOR VEH 146,374,120
2000 Export India Japan S3- 784 457,334 PARTS,TRACTORS,MOTOR VEH 3,475,318
2000 Import India Malaysia S3- 784 143,464 PARTS,TRACTORS,MOTOR VEH 768,632
2000 Export India Malaysia S3- 784 1,831,270 PARTS,TRACTORS,MOTOR VEH 5,754,195
2000 Import India Philippines S3- 784 32,901 PARTS,TRACTORS,MOTOR VEH 671,725
2000 Export India Philippines S3- 784 99,394 PARTS,TRACTORS,MOTOR VEH 458,328
2000 Import India Thailand S3- 784 135,845 PARTS,TRACTORS,MOTOR VEH 842,521
2000 Export India Thailand S3- 784 224,374 PARTS,TRACTORS,MOTOR VEH 1,233,068

2004 Import India China S3- 784 838,146 PARTS,TRACTORS,MOTOR VEH 7,071,779
2004 Export India China S3- 784 2,553,025 PARTS,TRACTORS,MOTOR VEH 10,247,223
2004 Import India Indonesia S3- 784 471,472 PARTS,TRACTORS,MOTOR VEH 5,223,288
2004 Export India Indonesia S3- 784 1,990,091 PARTS,TRACTORS,MOTOR VEH 6,726,100
2004 Import India Japan S3- 784 10,084,937 PARTS,TRACTORS,MOTOR VEH 128,854,455
2004 Export India Japan S3- 784 1,236,969 PARTS,TRACTORS,MOTOR VEH 8,861,461
2004 Import India Malaysia S3- 784 58,622 PARTS,TRACTORS,MOTOR VEH 953,834
2004 Export India Malaysia S3- 784 2,847,100 PARTS,TRACTORS,MOTOR VEH 12,159,597
2004 Import India Philippines S3- 784 324,527 PARTS,TRACTORS,MOTOR VEH 5,025,094
2004 Export India Philippines S3- 784 296,097 PARTS,TRACTORS,MOTOR VEH 1,314,388

2003 Import India Thailand S3- 784 1,856,680 PARTS,TRACTORS,MOTOR VEH 18,625,858
2003 Export India Thailand S3- 784 1,441,708 PARTS,TRACTORS,MOTOR VEH 6,652,729
2004 Import India Thailand S3- 784 4,682,907 PARTS,TRACTORS,MOTOR VEH 51,886,383
2004 Export India Thailand S3- 784 2,346,128 PARTS,TRACTORS,MOTOR VEH 16,260,945

Source: UN Comtrade data


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