Local brands fail to convince

Criticism has intensified as some state-owned automakers and their joint venture partners launch so-called self-developed local-brand cars. The cars are no more than low-priced, rebadged and relaunched versions of foreign-brand models that just went out of production.

Examples are the Everus S1, which is based on the Guangzhou Honda City, the Venucia D50 based on the Dongfeng Nissan Tiida, or the Ciimo based on the Dongfeng Honda Civic.

Ironically, dealers of the Ciimo in Beijing changed the car's new logo back to Honda's "H" to boost sales because customers prefer foreign brands to real domestic ones, which have a poor reputation for quality.

Though some said that relaunching foreign-brand models as local-brand ones complied with government policy that aims to push foreign companies to transfer technology, many doubted that using old-fashioned foreign technology for "self-developed" cars could provide any long-term benefit.

Without self-owned technology, the Chinese would have to continue depending on foreigners to launch future generations of these cars, they said.

"This is corruption because the policy is made to favor foreign automakers, but not local ones," said Rao Da, chief of the China Passenger Car Association and son of the man who headed FAW in Mao's time. "How come we were able to design and manufacture the luxury Red Flag limousine in the 1950s but needed to import steering technology for mid-sized trucks in the 1980s?"

He believes that using foreign technology wherever possible discourages Chinese technicians from improving and that is why big state-owned automakers have so far failed to stop their own brands losing ground.

Too many joint ventures

Although China's auto industry is widely believed to be overdependent on foreign companies, auto factories continue to sprout across the nation.

Volkswagen and its partner Shanghai Auto are building their seventh plant, Ford said it would build its sixth, and Renault and Nissan's luxury brand Infiniti both said they would begin to produce vehicles here in two years.

Dong Yang, chief of the China Association of Automobile Manufacturers, said "the joint ventures are undeniably successful, but we have attracted enough foreign investment and don't need to open the industry further."

"The government should immediately halt approvals of new joint ventures," Rao warned. "Opening the industry any further will kill off local automakers and even threaten national security."

"It's not joint ventures and huge car sale volumes that will make China's auto industry strong. What we need are domestic companies with strong capabilities in research and development," he added.

Many people are persuaded that the Chinese auto industry followed a strategy of "trading the market for technology," but analysts said it was wishful thinking because core technology can only be acquired by paying high prices or by doing independent research.

"Right now, China is powerless to break away from foreign automakers and their joint ventures. On the other hand, it must promote its own auto industry by taking the tough technology lessons they have so far neglected. That is the only way to stop the dependence deepening," said Zhong.

Wang Xiaoguang, a policy-making advisor at the Chinese Academy of Governance, said that industry policy was fundamentally mistaken and that China should stop state enterprises relying on joint ventures for easy money without doing any real R&D.

"Otherwise, they are doomed to fail," he said.