Although the debate over overcapacity in the auto industry continues, the National Development and Reform Commission has released a Notice on Several Opinions on Accelerating Structural Adjustment of the Auto Industry. According to recent reports from the commission's relevant departments, the document is now being finalized and is expected to be officially announced soon.
"This can be considered another significant policy framework aimed at guiding the sustainable development of China’s automotive sector," said an insider involved in drafting the notice. The document emphasizes two key aspects: first, it uses a scientific development approach to address structural issues like overcapacity caused by irrational expansion; second, it aligns with national strategies for independent innovation, aiming to enhance the auto industry’s capacity for self-reliant technological advancement.
The notice aims to provide more room for the independent growth of Chinese automakers, positioning domestic brands as the driving force behind the industry’s future development. This reflects a strategic shift toward strengthening local competitiveness and reducing reliance on foreign technology.
China’s auto industry has long struggled with weak global competitiveness. A joint report by the Ministry of Commerce and the China Automotive Technology and Research Center revealed that China’s overall competitiveness index stands at 41.7% compared to the U.S., 42.4% compared to Japan, 47.3% compared to Germany, and 61.6% compared to South Korea—far behind these global leaders.
The report evaluates Chinese automakers across four key areas: market performance, efficiency, R&D capabilities, and scale. It found a significant gap between Chinese companies and multinational corporations, highlighting low international competitiveness.
In 2004, General Motors, Volkswagen, and Toyota held 12%, 7.5%, and 9.9% of the global market share, respectively, while FAW and Dongfeng only accounted for 1.4% and 0.8%. In terms of R&D investment, FAW spent 1.283 billion yuan, and Dongfeng spent 886 million yuan, far below the 5.8 billion, 2.461 billion, and 3.864 billion U.S. dollars invested by GM, Volkswagen, and Toyota in 2002. Relative to sales revenue, FAW and Dongfeng spent just 1%, while their global counterparts spent around 3% or more. The report concluded that China’s auto industry lacks strong independent development capabilities, with its R&D capacity being less than half the average of leading automotive nations.
Industrial structure remains a critical issue. A senior industry source noted that due to the lack of core technologies, the high-end segments of the automotive value chain are dominated by foreign firms. When domestic and foreign capital ratios are 2:1, profit distribution is 1:2, and return on investment is 1:3. State-owned enterprises earn only one-tenth the returns of foreign-funded ones.
Despite various challenges, the most pressing problem is an unhealthy industrial structure. Without sufficient scale and production volume, it is difficult to achieve competitive quality, performance, and pricing. The industry is not just about producing cars—it’s about building a sustainable, competitive ecosystem.
However, the "scattered, chaotic, and poor" state of China’s auto industry persists. In 2005, there were 145 vehicle manufacturers and 536 remodeling plants, but only 10 companies sold over 100,000 vehicles annually, with just 30 selling 10,000 units. This highlights a severe lack of consolidation and efficiency.
A joint study by the China Automotive Engineering Society and the China Automotive Technology and Research Center pointed out that domestic companies often suffer from low product value, minimal per capita profit, and small market shares, which limits their ability to reinvest in R&D. Many companies still rely heavily on external technology without fully integrating or innovating.
The core of the new notice focuses on developing stronger, more competitive domestic brands. The government aims to foster a reorganization environment that encourages mergers and acquisitions, enforces strict industry policies, raises investment barriers, and supports independent innovation. These measures are designed to strengthen the position of Chinese brands in both domestic and international markets.
According to the upcoming “Eleventh Five-Year Plan for the Development of the Automobile Industry,†the goal is to increase the market share of self-owned brands, especially passenger cars, to over 60%. This is part of the government’s broader effort to reshape the industry and promote sustainable growth.
Reporter: Chen Jingyi
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