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Tales from the Development Frontier
Origin and Course of Development China’s modern automobile industry, started with help from the former Soviet Union in the 1950s, began by creating vertically integrated auto firms. The Sino-Soviet split of the 1960s cut the links to Soviet technology. Strict centralized controls of investment and production were then combined with a location preference for remote peripheral regions because of the defense-orientation of the industry (Sit and Liu 2000). Auto manufacturing subsequently became a national priority industry. Following the economic reforms of the late 1970s, the auto sector grew rapidly, drawing on foreign investment and technology. In 1994, the government issued the first industrial policy for the auto sector, making it clear that “the state encourages enterprises to develop the auto industry by utilizing overseas investment.”35 Joint ventures with foreign firms supplanted early domestic leaders as the sector’s dominant producers. In 2004, China issued a new auto industrial policy, which encouraged mergers and restructuring. Beginning in 1986, China imposed a protective tariff on automobiles: 180–220 percent for assembled vehicles and 20–50 percent for auto parts.36 These high tariffs blocked most imports, and rising domestic demand spurred local governments to build their own automobile industries. After three decades of rapid development, China has become a global leader in auto production, as well as the world’s largest national market for new cars. To meet the rising demand for civilian vehicles, automakers have concentrated production in more developed regions in central and eastern China. There are now 30 major automobile producers in China, manufacturing 13 million cars in 2008 (figure 5.10). The number is projected to hit 31.2 million by the end of 2015 (NDRC 2010). The automobile industry appeals to local governments because of its visibility, high profits, long value chain, and potential for raising GDP growth and employment. By 2009, 23 of the 31 provinces had their own large automakers (table 5.6). Ningxia was among the laggards, causing local officials to search for a path to enter this prestigious industry. The growth of