Why China's Auto Industry Doesn't Take the Road to Autonomy
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October 04 23:04:59, 2025
One of the Joint Venture Policy Makers' Self-Defense: A Realistic Choice
Chen Bin recalled a moment when he used the Xiali car as an example and asked the leader of the FAW-Volkswagen Institute: If they focused all their FAW resources, could they develop a model like the Xiali? The answer was "impossible."
The rapid growth of China's automotive industry has drawn widespread attention, both within and outside the sector. However, it has also sparked some criticism and doubt about the path taken by Chinese automakers over the past two decades. Despite the implementation of a market-for-technology strategy for more than 20 years, independent brands have not made significant breakthroughs, and reliance on foreign capital remains high.
On September 16, Chen Bin, deputy director of the Industry Department at the National Development and Reform Commission, shared his views at the 2006 China Automotive Industry Development International Forum. As a key figure involved in shaping major automotive policies, he discussed the reasons behind the joint venture model that China adopted.
Joint ventures and cooperation, according to Chen, were not just a choice but a historical and realistic necessity. He responded to critics who questioned why China didn't focus more on independent development instead of relying on foreign partnerships.
In 1994, the "Auto Industry Industrial Policy" was introduced, marking the first time the state officially encouraged the use of foreign capital to develop the domestic auto industry. During the drafting of this policy, Chen invited leaders from major domestic research institutes to assess what could be achieved through self-reliance.
He used the Xiali car as a case study, asking FAW-Volkswagen’s leaders if they could develop a similar model with all their resources. The answer was still "impossible." When pressed further, the response pointed to the power platform as the main obstacle.
Even with government support in introducing a platform, the answer remained "no." This sentiment wasn’t limited to FAW—leaders from other major companies like Dongfeng echoed the same concerns.
Chen also highlighted that during the "7th Five-Year Plan," FAW tried to develop its own light vehicles independently, but after seven years, the product failed to compete. Meanwhile, companies like Qingling and Jiangling succeeded by introducing Japanese Isuzu engines, earning 20,000 yuan per vehicle. FAW, on the other hand, struggled financially.
This experience reinforced the decision to encourage foreign investment. The industrial policy emphasized that Chinese enterprises should not lose control, hence the stipulation that Chinese equity must not fall below 50%.
Chen clarified that the 50-50 share ratio was never a strict requirement set by the government. Instead, it was often a choice made by the companies themselves. For instance, FAW-Volkswagen had a 60% Chinese stake, while the 50-50 rule was not mandated by policy.
Another important regulation was that foreign companies could not establish more than two joint ventures or cooperative enterprises in China using the same type of vehicle. These measures helped maintain balance and prevent monopolization.
Over the past 20 years, the use of foreign capital has significantly boosted China’s automotive industry. Through collaboration, manufacturing standards reached international levels, and the parts industry expanded, laying the groundwork for future independent development.
Chen concluded that many challenges are not solely determined by industry policies, but also by the broader innovation system and national policy environment during that period.