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The challenge for China Joint Development Industrial Company

For more than 20 years, China’s automotive industry has followed the policy of “market for technology” with little success. Or rather it might be regarded as fruitless, so far as core technologies are concerned. Today, the National Development and Reform Commission (NDRC) would find it unacceptable to face the reality that China has to rely on imports of automatic transmissions every year.
 
Transmissions are a key component of automobiles, playing a significant role in the quality of vehicles for performance, comfort and fuel efficiency. The cost of transmissions, being about 7 percent of the vehicle, has more and more effect over the behavior of consumers.
 
If in the past decade China has devoted to the development of engines, the next decade will possibly witness China’s development of transmission technologies, one of the hot spots of attention in the automotive industry.
 
United development
Statistics from China Association of Automobile Manufacturers (CAAM) indicate that China spent as much as $3.28 billion in importing automotive transmissions in 2007. Clearly transmissions have become a major increasing point of China’s imported automotive products.
 
Now a variety of transmissions are produced in the world, including AMT (automatic manual transmission), AT (automatic transmission), CVT (continuously variable transmission) and DCT (dual clutch transmission), each having its own merits.  
 
It has been an issue of controversy as to which kind of transmission is the best to develop in China. For years many domestic enterprises have been engaged in independent research of AT, CVT, DCT and AMT as well. For example, Geely has been dedicated to the development of AT and CVT, but with no satisfactory results. It is now moving in the direction to take up DCT instead.
 
The dual clutch transmission, which derives from the manual transmission, has combined the advantages of fuel efficiency and comfort from both the manual and automatic transmissions, representing the state-of-the-art transmission technology in the contemporary world.
 
“You have to suffer a lot with no command of core technologies,” said Li Jianxin, chairman of Changfeng Group, which had experienced a bitter denial from a German company when Changfeng tried to purchase its technology in the development of a Chinese clean diesel engine.
 
Earlier, China’s NDRC had thought of helping a few Chinese automakers to make joint investments on the transmission project with a foreign transmission supplier. Unexpectedly the JV proposal was turned down for the excuse that the international brand suppliers were not allowed to make a joint venture with Chinese enterprises.
 
This is why China’s transmission market has been controlled by foreign companies till today. Almost all automatic transmissions have been imported from abroad, except in joint ventures like Shanghai-GM, where the transmission production line was introduced from American GM years ago.  
 
Consequently Chinese automakers have no alternative but to take cues from others in the development of core components. It is not a matter concerning individual enterprises but a hard nut to crack for the whole nation.
 
Experts believe that it would be wise to pool together the efforts of domestic automakers in a cooperative project for transmission development, because it is a tough project that would consume huge amount of investment and resources for each enterprise. 
 
Several weeks ago, a dozen of major Chinese auto manufacturers including FAW, SAIC, Dongfeng, Chang’an, Chery, Brilliance, Geely and Changfeng agreed to unite for the joint development of Chinese-made automatic transmissions, particularly the dual clutch transmissions.
 
Now, under NDRC’s work of coordination, a united R&D center called China Joint Development Industrial Co., Ltd. (CJDIC) has been set up. The new R&D center aims to quickly change the situation, in which China has to rely entirely on imports for automatic transmissions in domestic auto manufacturing.
 
“The DCT project is still under negotiation,” said Ge Lishuang, director of the parts planning office under FAW. “The technology provider is BorgWarner. We have united to learn from it and acquire the technology in the end.”
 
“Well, we have been in talks with several Chinese automakers about the establishment of a joint venture or a wofe,” said Tim Manganello, chairman and CEO of BorgWarner, during his trip to China in March this year.  “BorgWarner is seeking the chance of further investment in China.”
 
Benefit balance
It is true that Chinese government has shown great concern on the local development of automatic transmissions, particularly the DCT core technologies in the country.
 
In November 2006, the former NDRC vice director Chen Deming was keenly interested in Chery’s self-made engine product ACTECO, when he visited Chery’s booth at Beijing International Auto Show. He expressed his hope that Chery could do more with breakthroughs in the development of home-grown transmissions.
 
On December 24, 2007, NDRC issued a new edition of Catalogue for the Guidance of Industrial Structure Adjustment. In this document, many items concerning the development of CVT, AMT (above 6 speed), AT (above 6 speed) and DCT were listed in further details as a sort of encouragement.
 
In January 2008, NDRC’s vice director Zhang Guobao attended the signing ceremony held between SAIC and Brilliance on the joint development of AMT and AT series. It was believed that SAIC would probably become the first automaker capable of developing DCT transmissions.
 
Obviously, NDRC’s proposal for the establishment of the CJDIC is to share the advanced technologies among the Chinese automakers. In other words, those technically strong manufacturers should do something to help the weak ones in the future development of transmissions.
 
It is said that in the newly established company, Chang’an Auto will take up about 10 percent of the stake, while Dongfeng has not finally decided yet. Other members have also declined to make further announcement of their participation to the public.
 
If everything goes smooth with DCT project, China will, of course, become a very large market of DCT transmissions. According to Geely, the greatest significance of the union will be to save a lot of money in outsourcing for each enterprise if China is able to produce automatic transmissions domestically.
 
“However, there must be something to balance for different needs of each company,” said Ge Lishuang from FAW. “As for us, for instance, we hope that the FAW-related powertrain workshop will be best set up in Changchun for the sake of convenience.”
 
“Let’s just take it as a collective sourcing in that case,” commented one of the union members. Some would like to join in the R&D center with certain stakes without participation in specific research work or production.
 
“So in the first place we have to understand how to make compromises to adjust the benefits among the member enterprises,” said an informative source close NDRC authorities. In fact, the proposed company charter has not been accepted by every party despite several revisions so far. The contradictions between union members are something unexpected for NDRC at the beginning.
 
Who governs
Speaking at the Global Insight conference held in late May in Shanghai, Duan Chengwu, Asian technical research analyst, believed the development of transmission in China will be diversified due to the complexity of the domestic situation, where certain achievements have been made in CVT scientific research and AMT mass production. But in the long run, more attention should be paid to the development of DCT, which would have a promising future.
 
Generally speaking, multinational auto manufacturers have already acquired core technologies concerning the development and production of automatic transmissions. BorgWarner (U.S.), Scheffler (Germany) and Aisin (Japan) are the only three independent manufacturers that are able to develop auto transmissions in the world.
 
BorgWarner, with its headquarters in Michigan, is one of the Fortune 500 devoting to the scientific research and application of vehicle power systems. CJDIC has to cooperate with BorgWarner and learn the core technologies in the development of DCT transmissions.   
 
“To me, learning and acquiring the core technologies in manufacturing DCT transmissions are of paramount importance for domestic automakers,” said Chen Wenkai, president of Gasgoo.com. “It seems, however, this problem remains unsolved today.”
 
Nowadays, many parts multinationals prefer to invest in China as a wofe company. BorgWarner is likely to follow suit. Analysts say it is a mere sort of stance when BorgWarner tried to contact and collaborate with the Chinese government as a “late comer” on China market. Still, the question remains as to what kind of know-how and how much BorgWarna is ready to deliver to the Chinese party in such form of cooperation.  
 
“It seems the Chinese automakers should not pin too much hope on the cooperative development of DCT transmission with BorgWarner,” commented Chen Guanzu, a veteran automotive expert. “The parts makers like BorgWarner would rather keep the core technologies to their own instead of sharing them with others, just because their world market would be reduced if they do so.”
 
Maybe it’s too early to draw the conclusion. We have to wait and see if the vast open market in China is able to exchange with the DCT technology from foreign firms. As a matter of fact, the DCT project has become a real challenge not only for the domestic automakers, but to the wisdom of the Chinese government agencies.
 
 
 

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