The Development of the Automotive Industry in China: Opportunities and Challenges for Mexico

Transcription

1 Journal of US-China Public Administration, ISSN January 2012, Vol. 9, No. 1, D DAVID PUBLISHING The Development of the Automotive Industry in China: Opportunities and Challenges for Mexico Juan Carlos Gachúz Harvard University, Cambridge, USA The automotive industry in China has developed rapidly over the last 20 years. As the product of a strategic planning of state resources and technology transfer from multinational enterprises, the Chinese automotive industry is one of the most important industries internationally. Currently, China is the largest producer of vehicles worldwide and has the largest vehicle market growth in the world. Despite of this, the Chinese automotive industry is just beginning to develop a concrete strategy of export and production of vehicles into other countries. The industry has plans to expand its production, especially in developing countries with sufficient infrastructure to produce vehicles for export to regional markets. This represents an invaluable opportunity for a country like Mexico, which besides having an important domestic market, also has the infrastructure, technology and manpower needed for vehicle production and an existing export platform for North and South America. Mexico must generate multiple-producing vehicles to reduce its dependence on U.S. producers, and increase its investment from Asia and particularly from China. Keywords: China, automotive industry, Mexico, Latin America Background of the Automotive Industry in China: The Formation of Joint Ventures The early development of the automotive industry in China came with the establishment of the first five-year plan from 1953 to Like its counterpart the Soviet plan, it was established at the outset as a priority for development of heavy industry and capital goods (Bianco, 2010). Mao Tse Tung believed that the Chinese economy could only develop in an autonomous way, with the creation of state companies that guaranteed the basic inputs for the development of a national industry. With this in mind, 85% of the investments during this period would be conducted in the area of heavy industry. The development of industry and transportation would amount to 56% of the total investment, 18.7% of which would be electricity, oil, mechanical, chemicals, and steel. The development of the steel industry was crucial in this period of industrial expansion in China, as it contributed to the development of infrastructure, exploitation of natural resources and provided inputs to emerge engineering industries. It was at this time that the first attempt to establish a domestic industry, not only of cars but also trucks, tractors, and ships, was tried (Bianco, 2010, pp ). First Automotive Works (FAW) began operations in This company as its name indicated, was the first company in the domestic Corresponding author: Juan Carlos Gachúz, Ph.D., Rajawali fellow, Ash Center, Institute for Asia, John F. Kennedy School of Government, Harvard University; full time, tenured professor and postgraduate director, Tecnológico de Monterrey, Campus Puebla; member of the National Research System (SNI-CONACYT) level 1; research fields: Chinese FDI in Latin America, political relationship between China, USA and Latin America (geopolitics and geo-economics, security issues, etc.). jcgachuz@itesm.mx.

2 98 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA automotive industry in China. In 1969, the Chinese government set up another automotive company, Second Automobile Works (renamed Donfeng Motor Corporation in 1981). 1 With marked fluctuations, this process of expansion of these industries continued until the mid-seventies. At the time of Mao s death in 1976, Den Xiao Ping and Zhao Zi Yang began to implement radical changes in the Chinese economy. Especially since 1979, the first policies were aimed at decentralizing the management of the economy, such as promoting a process of agricultural freedoms and for the marketing and production of agricultural goods in particular (K. Lieberthal & G. Lieberthal, 2003). Gradually, this process of opening up the economy extended to other crucial sectors. China s economy soon began to have positive results with the structure of one country two systems. Subsequently a major economic incentive for attracting foreign capital was the establishment of Special Economic Zones (SEZs). The requirements for investing in China were reduced significantly in some sectors and the Chinese government began to provide significant incentives to new investors, both Chinese and foreigners (K. Lieberthal & G. Lieberthal, 2003). The result of these policies was the exponential growth that the Chinese economy began to experience. The Gross Domestic Product (GDP) grew by an average of 11.3% between 1980 and It was in this context that the Chinese government aggressively promoted the establishment of joint ventures in various industries including the automotive industry. It believed that despite of the incentives to productivity and investment in this sector, Chinese companies on their own were unable to develop leading edge technologies in the short term to supply the population of motor vehicles. The only way to obtain technology in the automotive industry was through the leading companies worldwide. Through joint ventures, domestic enterprises would have an important stake in the ownership of these and they could only sign agreements with multinationals in a given period (20-50 years maximum). With this strategy, Chinese companies would benefit through technology transfer, development and training of skilled manpower, know-how for the production and domestic experience. The export market was assured. Multinational companies would benefit from the enormous potential for production and sales in a country with the largest population in the world and one of the largest land areas. It was therefore a strategy that would benefit both parties. The Chinese government set up in parallel to a strict control of imports and prices of vehicles. To foster the growth of domestic production and encourage local producers to set import quotas, high tariffs and taxes on imports of auto parts and vehicles of foreign origin were imposed (Francois & Spinanger, 2004, p. 191). Within this context, the Big Three of China First Automotive Works (FAW), Donfeng Motor Corporation (DFM) and Shanghai Automobile Industry Company (SAIC) signed joint ventures with other multinational companies. SAIC, the largest automotive conglomerate in China, established a joint venture with Volkswagen in 1985 (Shanghai Volkswagen), which focused on producing and distributing the flagship luxury car, the Passat. This joint venture (50-50) was the first to be signed in China and to date remains a leader in the automotive industry in that country. 2 SAIC was restructured in 1995 and subsequently signed another joint venture with Buick (Shanghai General Motors), in a scheme. This company is the second largest in China, focusing mainly in producing luxury vehicles. The matrix of this company and the main production 1 These state companies set the cornerstone for the development of the automotive industry in China, as we will see later, nowadays they are, together with Shanghai Automobile Industry Company (SAIC) among the biggest Chinese automobile companies. 2 Shanghai Volkswagen (SVW). Retrieved from

3 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA 99 plant are located in Shanghai. 3 In 2006, SAIC started operations for the development of its own prototypes and production of its own brands of vehicles. 4 FAW, in turn, holds interests in three companies: FAW Jinbei Company (Chinese company); FAW-VW, established in 1991 to produce the Audi A6 and VW Jetta, Bora. It also has another joint venture with Toyota to produce luxury cars and SUVs. DFM holds interests in four joint ventures: Dongfeng Dragon (established in 1992 with Citroen), which mainly produces the Citroen ZX, Elysee and Picasso. The other joint venture is Feng Sheng Motor (Taiwan Yurong in 2000) and with Nissan, established in 2001 and eventually involved in another Korean company and Jiangsu Yueda Kia, where Kia has a ownership of 50%, and Dongfeng and Yueda 30%, 20% (Goldman Sachs, 2003, p. 36). Other smaller companies have also established joint ventures with multinational companies. Tianjin Automotive had the privilege of signing a joint venture with the world leader, producing compact cars for Toyota. Changan Automotive had two joint ventures with Suzuki in 1993 and the other with Ford in Guangzhou Automobile Group signed a joint venture with Honda in 1998, focusing on producing the Accord and Odyssey minivan. Beijing Automotive is engaged in two joint ventures with Daimler Chrysler to produce the Jeep Cherokee and the other with Hyundai. Jiangsu Nana Automotive Co. has a joint venture with Italy s Fiat, and mainly focuses on the production of the Palio, a model that competes directly with GM and VW Polo (Goldman Sachs, 2003, pp ). Chery Automobile is the brand of most Chinese cars sold in that country. Its parent company and main plant are located in Wuhu, Zhejiang. The company has announced that its main objective is to export luxury cars to the United States. 5 From 1990 to 2006, competition for these companies that dominate the market in China is very strong. However, the Chinese government s strategy for a globally competitive automotive industry has yielded positive results. In a scheme suitable to the Chinese government, major corporations have entered into China by fostering technology transfer and strengthening of domestic enterprises. With regard to the present participation of such firms in the Chinese market, we can mention that companies that first went to China (such as VW and GM) have important advantages over the others. These companies have greater knowledge of the Chinese market by region, enjoyed having more time in contact with government and other authorities. VW and GM (the two first companies to penetrate the Chinese market) will continue being leaders in the Chinese market. 6 However, the profits of multinational corporations are not greater in the oldest companies in China, companies like Mercedes Benz and BMW get almost $ 3,000 profit per vehicle, while Toyota, Honda, Nissan and VW earn on average $ 1,500 per vehicle produced in China. This is primarily due to the characteristics of the vehicles (luxury cars in the case of BMW and Mercedes Benz) and also in the use of the production capacity of plants (Goldman Sachs, 2003, p. 4). Only three companies recorded losses, Fiat, Ford and Chrysler. These companies are increasing their expansion to the Chinese market. The Chinese Automotive Industry in a Global Context Strategic planning of the Chinese state and the process of technology transfer from multinational 3 Shanghai General Motors. Retrieved from 4 Shanghai Automotive Industry. Retrieved from 5 Chery Automobile. Retrieved from 6 National Bureau of Statistics of China. Retrieved from And also see La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues.

4 100 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA companies has brought positive results to the development of the Chinese automotive industry. The government has efficiently channeled and structured the interests of multinational companies to market their vehicles in China. Chinese companies have benefited from the establishment of joint ventures with foreign firms and gradually have been developing their own technology. Especially in the last eight years, China has had impressive growth in vehicle production (Goldman Sachs, 2003, p. 6). In 1999, China produced 1.8 million units. By 2009, this number rose to 13.8 million units, which represents a growth of over 12 million units. China has overtaken to other countries which until recently were among the world leaders in the production of automotive vehicles, such as the U.S., Japan, UK, Germany, Brazil, and South Korea. 7 The automotive industry is currently one of the strategic sectors of the Chinese economy. This country has more than 120 manufacturing plants expanded plants throughout its territory and more than 2,000 auto parts companies that supply it. 8 With regards to employment, this sector is also one of the most important, more than 4,600,000 people are employed in the production of vehicles (not including indirect jobs, and auto parts companies), the number of people employed in this sector has surpassed the United States and is just below Germany. 9 Regarding the cost of labor in China, still far below the costs in the industrialized countries, a report by the Congressional Research Service (to the United States Congress) states: The annual wage for production workers in China (workers) has a range of $ 1,000 to $ 3,000. For the technical staff, the range is $ 1,200 to $ 5,000, while executive wages have a range of $ 10,000 to $ 30,000 (Cooney, 2006, pp ). The cost of labor in China (although still growing) remains attractive to multinational corporations, and a substitute for other production costs still remain high in China, mainly due to surplus production models and some faced and the cost of certain raw materials, especially steel (Cooney, 2006, pp ). Similar to production, vehicle sales in China have also increased dramatically and have accelerated over the same period. In 2010 sales increased by more than 9.45 million vehicles per year, 10 over 110 new models were introduced to the Chinese market. Models with higher sales were: Jetta, Excel, Elantra, Santana, Xiali, QQ, Accord, Lingyuan, Qiyun and Corolla. The Chinese vehicle market has become one with the greatest expansion worldwide. 11 Despite of this exponential growth in production and sales of vehicles in the Chinese market, it cannot be said that 1.3 billion people in China are potential car buyers. According to the Statistical Office of China, only 50 million Chinese earn enough to buy a car despite of the fact that this number is expected to exceed 170 million by 2010, yet potential buyers are still a minority compared with the total Chinese population 12, while industrialized countries like the United States averaged nearly 80 cars per 100 people with an income of over 35 thousand dollars a year, or Japan, where 60 of every 100 people with an income of 40 thousand dollars have a car. Several analyses show that one of the main risks for the Chinese automotive sector is the over-production (Parák, 2005; Welch, 2008). In this situation the Chinese government is trying to boost exports of vehicles and 7 OICA, World Vehicle Production Retrieved from 8 National Bureau of Statistics of China. Retrieved from 9 Bureau of Statistics of China. Retrieved from And also see La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues. 10 Scotiabank Group. (2011, June 29). Global Auto Report National Bureau of Statistics of China. Retrieved from 12 National Bureau of Statistics of China. Retrieved from

5 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA 101 to internationalize the Chinese automotive industry through investments in other countries. Vehicle exports in 2010 exceeded 450 thousand units 13, while the total amount for this item (including auto) exceeded 25 billion dollars. 14 In the Tenth Five-Year Plan of China, the development of the automotive industry appears to be a priority of the Chinese economy. This plan stipulated that by 2010 demand for vehicles in the domestic market will exceed 9 million units and the share of industry in gross domestic product will reach 2.5 percent of the total (Chen, 2006). As we saw before, with a production of more than 13.8 million of vehicles in 2009, this goal has been clearly achieved. The five-year plan also sets out the main challenges for the Chinese automotive industry and highlights the main objectives in the medium and long term: (1) To strengthen research capacity to develop different models of vehicles and engines; (2) To promote the establishment of technological research institutes in the automotive industry and strengthen the research capacity of this sector; (3) To develop technologies aimed at energy savings, security management, systems and related parts; (4) To develop new technologies to produce vehicles that do not pollute; (5) To further research on hybrid vehicles and using alternative energy sources; (6) To encourage cooperation between Chinese enterprises to improve technologies and research; (7) To develop private labels (China) and promote such as large corporations that are internationally competitive; (8) To guide corporations and joint stock companies to establish the development strategy of own brands. And to harness the private companies; (9) To accelerate the development of own brands, building domestic and international demand for vehicles; (10) To expand the export of automobiles and auto parts, and increase Chinese investment abroad and gradually develop transnational management (Chen, 2006, pp ). The Chinese government s strategy in the medium and long term reflects the ambitious expansion plans which are for the industry the goals set in the Tenth Five-Year Plan, which makes clear that this industry will be a priority for the Chinese economy, not only domestically but also internationally. The internationalization of the Chinese automotive industry represents an opportunity for countries like Mexico that seeks to diversify its sources of foreign direct investment (FDI) and increase the production capacity of cars for domestic consumption and export. Mexico has the necessary conditions to attract Chinese investment in the sectors (manpower, infrastructure and raw materials available), but also has privileged access to the American market through trade agreements that benefit from the exchange in this sector between Central and South American countries. The automotive industry in Mexico urgently needs to diversify sources of foreign investment, mainly from Asia (Japan, Korea, India, and China). The region reported the highest levels of economic dynamism and growth worldwide. Mexico should not miss the opportunity to attract foreign investment in this strategic industry because it is based on a chain of industrial processes (manufacture of glass, steel, oil, etc.). The impressive growth of the Chinese automotive industry will benefit with employment generation, infrastructure, 13 China s auto exports rebound in (2011, February 18). People s Daily. 14 National Bureau of Statistics of China. Retrieved from

6 102 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA development of new technologies, research. To those countries that succeed in establishing partnerships with Chinese companies will not only sell vehicles but also produce them domestically and export. The Automotive Industry in Mexico: Opportunities for Cooperation With China One of the main variables that have impacted the development of the automotive industry in Mexico in recent years has been the North American Free Trade agreement (NAFTA). Since 1994 when Canada, the US and Mexico signed this agreement, the Mexican automotive industry has undergone major changes in its structure. The impact of NAFTA on the industry, however, is not uniform ( ), and the results vary according to different areas of this industry. There have been positive and negative results. One of the main purposes of the treaty in the automotive industry in Mexico has been a greater reliance on Mexico to the U.S. market. The economic problems this country has faced in recent years and the loss of competitiveness of major U.S. companies in industry (General Motors and Ford) has pushed Mexico to seek new ways to revitalize the industry and to make it more dynamic. Investment from Asian countries, particularly China, is an alternative with great potential due to the incipient process of international expansion of it. Since 1994, vehicle production in Mexico has increased slowly but steadily (6.10% per annum on average). Production increased in this period from 1.09 million units in 1994 to 2.2 million units in Before the implementation of NAFTA, there was much more optimistic forecasts about the future of vehicle production in Mexico, for example, James P. Womack noted that Mexico could be the Spanish American (Flores, 1991) in reference to the importance of Spain s vehicle production in Europe. Executives in the Mexican automotive industry also expected that with the support of NAFTA, Mexico could become the fourth or fifth world producer of vehicles expectations which were too optimistic (Flores, 1991, p. 47). The data showed that vehicle production in Mexico was further accelerated from 1996 to Before 1995, the Mexican financial crisis had adversely affected the sector and in the period after 2000, there was a decrease in the production of vehicles surpassing 1.8 million units to 1.67 million units in 2003, a decrease of 217,145 units in just three years, then the production increased again in 2004 and then reported fluctuations in subsequent years. 16 One of the main reasons to explain the origin of these fluctuations is the increased dependence of companies established in Mexico with respect to the needs of the U.S. market. NAFTA resulted in a greater reliance on the automobile companies in Mexico, therefore, if the economy would show signs of recession and the consequent demand for cars that country were to decline (as experienced from 2000 to 2003), plants in Mexico would have no choice but to adjust to such fluctuations and lower the level of vehicle production. Another of the main effects of NAFTA on the automotive industry in Mexico has been the reduction in vehicle production for the domestic market. Due to the priority given to exports of vehicles and the substantial growth in this sector (exports rose from 575,000 units in 1994 to 1.85 million units in 2010), the production of vehicles for the domestic market registered a fall of 522,344 units in 1994 to 199,307 units in 2010, a reduction of over 323,000 vehicles in 17 years. 17 The decline in vehicle production for the domestic market with a growing demand for vehicles for the Mexican market has led to the exponential rise of imported vehicles. From the first year of implementation of NAFTA, more than 40 makers of vehicles have been established 15 La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues. 16 La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues. 17 La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues.

7 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA 103 in the country as dealers, i.e., companies that not only produce but also sell vehicles in Mexico. These companies have access to the Mexican market through multinational companies established in Mexico and enjoy the benefits of the treaty. Imports of vehicles have grown from 56,492 vehicles in 1994 to 700,725 vehicles in Moreover, with the arrival of new models and brands, aggressive credit schemes for companies and a relative stabilization in interest rates, demand for vehicles has increased considerably. Annual vehicle sales in Mexico have grown from 589,089 units in 1994 to 1.12 million units in Increased sales in the domestic market, however, as we have seen, were not due to an increase in vehicle production for the domestic market, when the domestic demand for vehicles (mainly compact and subcompact) was stocked with vehicles from overseas. While export performance has been positive (exports raised from 575,000 units in 1994 to 1.85 million units in 2010), the production for the domestic market is an area of opportunity, hence the importance of having new plants producing vehicles to supply the domestic market. One of the main problems of the automotive industry in Mexico is its lack of diversification of sources of FDI. The automotive industry in Mexico relies on more than 63 percent of U.S. investment and the current status of U.S. companies in the sector is worrying. 20 In this context, it is imperative that Mexico encourages the arrival of new sources of investment particularly from Asia, a region that has the fastest growing companies worldwide, although only Japan appears to have a total of 3.9%. This pattern is not only dependent on FDI but also on the destination of exports, Mexico depends heavily on the needs of the U.S. market for exports. 21 Under the new rules of NAFTA, the order of 34% of national value added in Mexico was removed and a new regional value content of 62.5% was established. The value of regional, however, does not mean content value local. Increased imports of raw materials and other inputs from the United States or Canada will lead to a more severe dependence of the Mexican automotive industry, as it occurs with the dependence on external flows of investment and technology (Gachúz, 2008). If a less developed country such as Mexico depends on a single or a few countries as exporters of capital or technology, the affected sectors will be extremely vulnerable to any interruption of such flows (Gachúz, 2008). A report of ECLAC on FDI in the automotive industry in Mexico posed in this sense that her competitiveness has been based on static advantages such as low wages, dependence on one market (the U.S.). Moreover, the organization considers that the auto industry has lacked in technology transfer, organizational practices, design capabilities and human resource training. The report notes that the international competitiveness of the largest auto industry in Mexico is based on static advantages (mentioned above) and low wages, geographic proximity and preferential access to U.S. market. The auto industry in the country was heavily integrated with the network of suppliers in the U.S., also came to play the same conflictual relations without corresponding benefits (the new role of suppliers of modular systems for plants). The industrial and technological advances have significantly limited the ability of human resources and some productive links, since there was little transfer and assimilation of technology and business development (ECLAC, 2003, pp ). 18 La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues. 19 La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues. 20 Loomis, J. C. (2006, February 20). The tragedy of General Motors. Fortune. In this article Loomis analyses the current situation of General Motors, the biggest automotive company in the United States. The company recorded in 2005 a huge loss of more than 8.5 US billion. High costs of production and few models to compete with Japanese and German cars could lead a bankruptcy of the company. 21 La industria automotriz en México (The automotive industry in Mexico). INEGI, several issues.

8 104 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA The ECLAC also believes that the Mexican automotive industry must implement new standards to compete successfully in other markets. It further suggests that: The Mexican automotive industry must design and implement appropriate standards that would advance its export-based platform for low salaries and privileged access, proximity to market a single-integrated into a manufacturing center to compete on the basis of resources human expertise, technological skills and a chain composed of world class suppliers. (ECLAC, 2003, pp ) Mortimore and Barron of ECLAC considered within the context of NAFTA that Mexico should have promoted the investment of other foreign companies in the sector, particularly Toyota, the world leader in the automotive industry. Having done this, Mexico had been able to extend its system of regional production and diversify their exports and imports. In this regard, the authors argued that: to Mexico would have been better to build their export platform around the automotive industry leader instead of multinational companies established in Mexico that had moved their production to Mexico only to reduce costs and thus better compete in the American market. Even Toyota's investment in Tijuana seems to fit well into the mentality based exploit comparative advantages in Mexico instead of expanding its production system to incorporate regional Australia in a major way. In this case, national policy was clearly not up to the challenge and lost a unique opportunity to strengthen its process of industrialization. (Mortimore & Vergara, 2004) The most elementary logic suggests that when a product for export depends on one or too few customers or business partners, the producer is not only more vulnerable to the demand of the importer, but also price distortions, suspension of payments, freeze contracts, etc. The diversification of exports and imports within the automotive industry brings to the industry more stability and certainty. Other countries (e.g., Canada) faced similar problems with its dependence on the U.S. automotive sector. However, Canada has made significant improvements in recent years. It has initiated a policy of diversifying its business by improving trade relations with countries outside the NAFTA region as Japan, Korea, Germany and France. Unlike the Canadian case, the dependence of Mexico toward the U.S. automobile sector is becoming stronger. As a consultant Kearney said: 90% of Mexican exports are destined for the United States and this situation to the domestic automotive industry is highly vulnerable to economic movements in this country. 22 Due to the absence of a business plan to promote the domestic market through domestic production and a lack of industrial strategies to diversify the use of imports and destination of communications, the automotive industry in Mexico is becoming increasingly dependent on the needs of the U.S. market and multinational companies. As mentioned earlier, when the U.S. economy shows some signs of recession and therefore the demand for cars in that country deteriorates (as experienced during the years of ), producers and auto companies in Mexico have little or no choice but to adjust to fluctuations, to make cuts in vehicle production, through technical stoppages or dismiss workers. The room for maneuver to address these problems is limited and much more than before the implementation of NAFTA. Due to its size and growth potential, the Mexican automotive market is a strategic area for countries like China that seeks to expand their production and supply growth in other markets (such as Central and South America). Infrastructure for vehicle and its privileged geographical position (which shares a border with the United States and two coastlines from which to export) are elements that enhance their competitive position 22 Despiden a 2 mil en VW (Two thousand workers are fired in VW). (2003, June 30). Reforma. Mexico.

9 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA 105 internationally. The high productivity of Mexican workers in the automotive industry and the increased availability of highly skilled labor 23 are also characteristics that encourage direct investment in the country and thus strengthen their competitiveness. Some Chinese companies have already stated that they are interested in investing in Mexico. The Chinese company Zhongxin has announced that they are interested in building a plant in the city of Tijuana mainly to export pickup trucks and SUVs to the United States. Geely Holding Group Co., China s largest privately owned automaker, also plans to build a factory in Mexico to make models for sale in the United States as a part of its new approach to tackle the world s biggest automobile market. The company is working with partners to set up a manufacturing base with an initial investment of US$ 500 million. The Mexico factory will be Geely s most expensive overseas facility and its first assembly plant outside of China with full manufacturing capabilities. Another Chinese state company, Chery Automobile is planning also exporting two car models to Mexico in the near future. Some see that move as a prelude to eventual assembly of the vehicles at Chrysler s manufacturing plant in Toluca. The two companies have been talking about various cooperative efforts, including selling Chery-built cars in North America under the Chrysler nameplate. The Chinese automotive industry has plans to expand its production especially in developing countries with sufficient infrastructure to produce vehicles for export to regional markets, it represents an invaluable opportunity for a country like Mexico, which urgently needs new sources of foreign direct investment to generate employment, infrastructure and develop additional opportunities for cooperation with the Asian giant. References Automotive News. (2008, February 11). Firma China usará a México para exportar autos a Estados Unidos (A Chinese company will set in Mexico as an export platform to the U.S.). Bianco, L. (2010). La China popular de 1949 a 1974 (China from 1949 to 1974). Retrieved from carrreltrabajo/index.asp?pagina_inicial=histsoccontemp/index.asp Chen, X. Y. (2006). La situación actual y la tendencia de desarrollo de la industria automotriz china (The current situation of the automot industry in China). CADA, Asociación de Automóviles de China. Retrieved from SemNRPC_CXiauyu.pps China s auto exports rebound in (2011, February 18). People s Daily. Cooney, S. (2006, April). China s impact on the U.S. automotive industry. Congressional Research Service, CRS Report for Congress, the Library of the Congress. Corbett, B., Winter, D., & Zachary, C. (2000, May). Mexico is heading into the automotive big leagues. Ward s Auto World, 26(5), 50. Despiden a 2 mil en VW (Two thousand workers are fired in VW). (2003, June 30). Reforma. Mexico. ECLAC. (2003). Investment and business strategies in the automotive industry. Foreign investment in Latin America and the Caribbean. ECLAC. Flores, V. E. (1991, October 16). El destino automotriz en México (The future of the automotive industry in Mexico). Expansión. 23 Corbett, B., Winter, D., & Zachary, C. (2000, May). Mexico is heading into the automotive big leagues. Ward s Auto World, 26(5), 50. According to the influential magazine Ward s Auto World, the efficiency and quality of the vehicles manufactured in Mexico are currently at the same levels or even better than those of the U.S. and Canada. The authors pointed out that Ford Motor Co. s Hermosillo facility ranked as the 6th most efficient subcompact car assembly plant in North America last year by Harbour & Associates Inc., and GM s Ramos Arizpe plant was ranked 10th. Analysts say workers in most Mexican assembly plants now have as good or better education levels than their counterparts in the U.S. Besides impressive productivity improvements, Mexico is making surprising gains in quality as well. George Owens, manager of product research at JD Power & Associates says the quality of vehicles built in Mexican plants has been steadily improving and now is in the same league as that of vehicles built in the US and Canada.

10 106 THE DEVELOPMENT OF THE AUTOMOTIVE INDUSTRY IN CHINA México. Francois, J. F., & Spinanger, D. (2004). WTO accession and the structure of China s motor vehicle sector. In D. Bhattasali, L. Shangton, and W. Martin (Eds.), China and the WTO: Accession, Policy Reform, and Poverty Reduction Strategies. World Bank. Gachúz, M. J. C. (2008). The impact of NAFTA on the automotive industry in México. Germany: VDM Verlag. Goldman Sachs. (2003, February). Global automobiles: The Chinese auto industry. Lieberthal, K., & Lieberthal, G. (2003). The great transition. Harvard business review on doing business in China. Harvard Business School Press. Loomis, J. C. (2006, February 20). The tragedy of General Motors. Fortune. Mortimore, M., & Vergara, S. (2004). Targeting winners: Can foreign direct investment policy help developing countries industrialise? The European Journal of Development Research, 16(3), Parák, R. (2005, January 7). KPMG concerned over automotive industry s view of over capacity. KPMG Media Relations, KPMG Solovensko Spol. Scotiabank Group. (2011, June 29). Global Auto Report Welch, D. (2008, December 31). Automakers s overcapacity problem. Business Week.