The famous auto executive Bob Lutz was on Charlie rose last night and he made an excellent point about China’s development strategy. Mr. Lutz said;
“China, when they developed their auto industry, they welcomed partnerships with western companies, especially American ones. The Japanese and the Koreans were absolutely mercantilistic and kept everybody out until their industry was big and powerful.
Everybody says, well aren’t you afraid of the Chinese? I’m not afraid of the Chinese because as the Chinese automobile industry develops General Motors is one of the biggest players.”
It’s an excellent counter point to the criticism many raise about market access in China. Opening large sectors of the Chinese economy to foreign firms, even with local partnership requirements, is better for the U.S. than the closed development model favored by Japan and South Korea.
Japan and South Korea closed their domestic markets to foreign competition, built up a competitive domestic industry, and then slowly opened their markets. Imports blocked with punitive tariffs and foreign companies were not allowed to build local manufacturing plants. Those restrictions were relaxed over time but foreign firms hold very little market share in either country.
China encourages foreign investment in the auto sector but requires a partnership with a local firm. They are using foreign expertise to build the domestic industry. Foreign firms maintain strong market share that Mr. Lutz believes is long-term sustainable as Chinese auto companies become more competitive. The Chinese model seems better for the U.S.
Interview with Mr. Lutz below.