Auto industry's slogans no match for R&D

BEIJING - Chinese automakers have relied too much on foreign companies to compete and the gap between domestic and foreign brands threatens to get bigger, industry insiders and analysts said, against a backdrop of a shrinking market and reshuffles in the industry.

Foreign companies helped kickstart China's auto industry, and offered easy success as Chinese automakers earned enormous profits from the sale of foreign-brand cars. But it has also bred complacency, according to analysts.

For a time, the problems were masked by glowing statistics, but as the market stutters, the problems have become obvious, said Zhong Shi, an independent auto industry analyst in Beijing.

Auto sales in the country experienced a decade of double-digit growth up to 2011. But those figures were achieved by allowing foreign automakers to build vehicles in joint ventures with local companies, most of them state-owned.

As foreign multinationals took advantage of low labor costs to tap into the world's largest auto market, China hoped that it would attract foreign investment and obtain technology to build up its own auto industry and catch up with the West.

Today, big names such as General Motors, Volkswagen and Toyota are dominant in China. Despite the overall slowdown in the Chinese market, they remain confident about growth and are racing to increase capacity at their joint ventures in the country, where customers prefer foreign-brand cars.

Local brands still lag far behind in terms of both technology and market share. To make matters worse, they are losing out to foreign rivals even in the low-end market. Analysts warned that half of them risk being wiped out sooner or later.

Beware unwanted side effects

Jia Xinguang, another independent analyst, said that while it had benefited from the joint ventures, China had overlooked the "side effects" -- overdependence on ready-made technology and foreign dominance.

Turning a deaf ear to calls to develop their own intellectual property, some state-owned automakers opted for the easy way, relying on their foreign partners for profits while paying lip service to independent research and development, he said.

First Automobile Works Group is an example. Involved in ventures with Volkswagen, Toyota and Mazda, it promised in high-profile publicity to "develop self-owned brands at all costs."

But after a one-year probe, the National Audit Office revealed in June that FAW had not sufficiently invested in independently researching and developing its own models and that its 2008-2010 profits stemmed largely from joint ventures.

The audit report was no surprise for Chinese auto fans. Since the 1990s, a series of FAW vehicles sporting the top Red Flag brand, a communist symbol, have been based on foreign-brand products, including the Audi 100, Lincoln Town Car and Toyota Crown Majesta.

FAW came under the spotlight again this month following an intellectual property dispute with Volkswagen, which is investigating whether its Chinese partner illegally copied its engine designs and plans to export a model equipped with the engines.

"The claim of some state enterprises that they are developing their own models is a marketing stunt intended to show they are listening to state leaders, or else a blatant lie," claimed Jia. "I tell the truth and so they don't like me."