Although the debate over overcapacity in China's auto industry continues, the National Development and Reform Commission has issued a Notice on Several Opinions on Accelerating Structural Adjustment of the Auto Industry. According to recent reports from the commission, the document is currently being finalized and is expected to be officially released soon.
"This is another significant policy framework aimed at guiding the sustainable development of the automotive sector," said an official involved in drafting the notice. The document emphasizes two key aspects: first, it applies a scientific development concept to address structural issues like overcapacity caused by irrational investment. Second, it aligns with national strategies for independent innovation, aiming to enhance the auto industry’s self-reliance.
The notice is designed to create more room for the growth of Chinese auto brands, positioning them as the main drivers of the industry's future development. This move comes in response to growing concerns about the competitiveness of China’s auto sector.
A recent report titled "Research Report on the Evaluation of China's Automobile Industry International Competitiveness" revealed that China's comprehensive 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 — all far behind these global leaders.
The report evaluated Chinese auto companies across four major areas: market performance, efficiency, R&D capabilities, and scale. It found that there is a huge gap between domestic firms and multinational corporations, with low international competitiveness. In 2004, General Motors, Volkswagen, and Toyota held global market shares of 12%, 7.5%, and 9.9%, respectively, while FAW and Dongfeng only accounted for 1.4% and 0.8%.
In terms of R&D investment, Chinese automakers still lag significantly. In 2004, FAW and Dongfeng spent 1.283 billion and 886 million yuan, respectively, on R&D — far below the $5.8 billion, $2.461 billion, and $3.864 billion invested by GM, Volkswagen, and Toyota in 2002. Even when measured as a percentage of sales revenue, FAW and Dongfeng’s R&D spending was only around 1%, compared to 3.10%, 3.14%, and 3.64% for the three global giants.
The report also pointed out that China’s ability to independently develop technology remains limited, with its capacity falling well below the average of leading auto-producing countries.
One industry expert highlighted that the root cause of weak competitiveness lies in an unhealthy industrial structure. "Due to the lack of core technologies, foreign capital controls the high-end parts of the value chain. When domestic and foreign capital ratios are 2:1, the profit distribution is 1:2, and return on investment is 1:3. State-owned enterprises earn just 1/10 of what foreign firms do," he explained.
Despite efforts to improve, the industry still suffers from fragmentation, disorder, and poor quality. In 2005, China had 145 vehicle manufacturers and 536 auto-remodeling plants, yet only 10 companies sold more than 100,000 units annually, and just 30 sold 10,000 or more — accounting for roughly 20% of total output.
A joint research project by the China Automotive Engineering Society and the China Automotive Technology and Research Center identified common challenges among domestic companies: low product value, minimal per capita profit, and small market share, which make it difficult to fund R&D effectively.
The new notice places a strong emphasis on developing independent brands. It encourages mergers and acquisitions, enforces stricter investment standards, and promotes innovation. The goal is to build internationally competitive Chinese brands and increase their market share to over 60% by the end of the 11th Five-Year Plan period.
This initiative reflects the government’s broader strategy to reshape the auto industry and foster long-term growth through self-reliance and technological advancement.
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