Professional Documents
Culture Documents
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.
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
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
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
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
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