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The inside story on the 11th Five-Year plan

In the 11th Five-Year Plan on China’s Automotive Industry, the Chinese Government, for the first time, tried “not to discourage foreign investment”. As a result, the official document was dramatically cut down from 100 to less than 30 pages, following seven revisions.


 


Cathy Chen recently interviewed the chief draftsman of the document, China Association of Automotive Manufacturers (CAAM) Deputy Chairman Zhang Shulin, on auto.sohu.com.


 


Planning still necessary


 


Sohu: When did the State Development and Reform Commission (SDRC) first tell you to come up with the 11th Five-Year Plan on China’s Automotive Industry?


 


Zhang Shulin: It began in 2004. As you know, we had to start making a new Five-Year Plan before 2005, the last year of the 10th Five-Year Plan. So we conducted a general survey on the basic conditions in China’s automotive industry, which was written in the feasibility study report.


 


Sohu: Were you the chief draftsman of the proposed plan?


 


Zhang: Yes.


 


Sohu: What were the initial guidelines for the 11th Five-Year Plan, according to the State Planning Commission?


 


Zhang: The economic environment in China was changing quickly, especially after the country’s entry into the WTO in 2001. And quite a few State policies had been changed with the swift development of the car industry. So at first it was a controversial issue of whether or not there was even a need to make an 11th Five-Year Plan on China’s Automotive Industry.  


 


Sohu: Then you decided to go ahead with it. Why?


 


Zhang: The auto industry is important for China’s economic development, and should be macro-controlled by the government. We eventually agreed on the matter, and that’s how the plan came into being.


 


Allocation of resources


 


Sohu: Can you tell us something about the differences between the 10th and 11th Five-Year Plans?


 


Zhang: Actually the two plans are quite different in many ways. The previous plan was made under a planned economy, and was mainly based off of the project planning that had been approved by the government. It contained detailed reports on production capacity, investment funds and expansion schemes, among other matters. Under these circumstances, FAW and Dongfeng Motor had to come to Beijing in turns for frequent consultation.


 


Things changed significantly when we made the 11th Five-Year Plan under the guidelines of the market economy. There was no need for the government to consider the development of auto companies, including their capacities, and investment and production plans. Therefore, any new plan simply had to lay down general principles to guide future development.


 


Sohu: It seems that you had some controversial ideas in the 11th Five-Year Plan.


 


Zhang: That’s true. The State Council said we should try everything to make the 11th Five-Year Plan a success. In the past, we had to spend a lot of time and effort coordinating our work with major businesses. But this time, the government could avoid being overly involved in specific administration.


 


In the Automotive Industry Development Policy, which was issued in 2004, for example, government administration focused on sustainable development for all of society, leaving independent decisions for companies to deal with. Some things remained untouched in the plan, including development strategies and the automakers’ own readjustments. In short, the 11th Five-Year Plan is a sort of program, with general principles pointing out the future development of China’s auto industry.


 


Sohu: Can we say that the new plan will have less influence on the interests of individual enterprises?


 


Zhang: Yes. Problems, plans and strategies for auto companies should be made and adjusted by the individual enterprises themselves. The national policy will simply guide them in the right direction.


 


Sohu: In that sense, the right to plan was handed over to the automakers themselves, right?  


Zhang: I don’t think so. Actually, they are two different kinds of plans. Planning for auto companies should take shape over the long course of development, while planning for the whole auto industry should demonstrate increased and heightened coordination between the development of the auto industry and the national economy.   


 


Joint ventures vs. independent brands


 


Sohu: In the process of making the 11th Five-Year Plan on China’s Auto Industry, it has been said the government had to seek a balance between the interests of joint ventures and independent carmakers. Is that the case?  


 


Zhang: Yes, the 11th Five-Year Plan is an important policy for everyone to read. Usually, enterprises both at home and abroad seriously study the plan. It will be closely connected with the interests of Sino-foreign joint ventures, too. In other words, the plan should apply to all kinds of automotive companies, including State-owned enterprises, privately owned companies, and joint ventures. That’s why we had to make several revisions.


 


In our first draft in 2004, we spent about 20 to 30 pages analyzing the domestic environment, the significant pressure on China’s auto industry, as well as a lot of problems for joint ventures and independent brands. But this was later completely removed.


 


Sohu: According to some media reports, the term “independent brand” seemed to appear as a keyword in the 11th Five-Year Plan on China’s Auto Industry. What do you think of it?


 


Zhang: The automotive industry is, in essence, an industry of technical innovation from the point of national economic development. In a huge market such as China, it is incredible that the auto industry could fall into a position of foreign dependency. The 11th Five-Year Plan is bound to push it towards independence and greater competitiveness. For many years, Chinese enterprises have laid a solid foundation in independent innovation. China has been narrowing the gap in the field of auto manufacturing with its growing competitiveness throughout the world.


 


By intensifying its self-development, the country has achieved the basic conditions for producing indigenous cars throughout the 11th Five-Year Plan period. Therefore, the next five years will be a crucial time for China’s auto industry to fully achieve independent innovation and to strengthen its independent brands on the world market.


 


But we are facing more pressure and difficulties in our quest to achieve this goal. It is almost impossible to solve all of these problems in just five years, but we can lay a solid foundation for future achievements.


 


Sohu: Do you mean to say that the 11th Five-Year Plan reinforces its support for making independently branded cars?


 


Zhang: Yes.


 


Sohu: Any examples?


 


Zhang: Well, the 11th Five-Year Plan does not include any specific policies. But relevant policies will possibly follow after its publication. 


 


Sohu: So how do we know the plan supports the production of independent brands?


Zhang: We have to just understand that it will be so, because of the development of enterprises, and because strategic guidance will create a better environment for independent brands. Besides, we have set a few goals for Chinese auto companies, emphasizing that at least 60 percent of their passenger cars should be independent brands.


 


Foreign investment


 


Sohu: Why did you delete the entire part related to problems facing joint ventures and independent brands? Did you want to avoid it on purpose?


 


Zhang: Well, it could be something that might hinder foreign investment if we talk too much about it. Of course, we can’t devote much space in the 11th Five-Year Plan to over-emphasizing such matters as China’s car exports, international market share, and overseas expansion. If we did, it would put a lot of pressure on foreign parties, which would in turn bring pressure onto ourselves.


 


As you know, we only raised a framework for these problems in the plan, leaving out a deeper analysis of contradictions within joint ventures. We crossed out the whole part simply because China will stick to the open policy of seeking common development in joint ventures with foreign parties.


 


We also closely analyzed contradictions and problems related to joint ventures in the “Project Study Report.” As for the “right of voice” in joint ventures, we have made it clear in the 11th Five-Year Plan that as long as we focus on the development of independent brands to raise our innovative capabilities, our voice will certainly become stronger than before.


Sohu: Did you hand in the “Project Study Report” to the SDRC, too?


 


Zhang: Yes, both were assigned by the SDRC. We presented thorough and detailed analysis in the study report, but had to cancel it in the 11th Five-Year Plan. We will also put forth a few requirements for joint ventures.


 


We were firmly committed, for example, to the general guideline of combining independent development with international cooperation. We need to make it clear in the 11th Five-Year Plan that China will never discriminate against foreign automakers or foreign investors.


We will also use our current capabilities to increase independent research and technical innovation. This includes production capacity, market advantages, and other elements, in both private companies and joint ventures.


 


We advocated increasing general strengths related to independent innovation through cooperation and the introduction of new products in joint ventures. We need to focus on independent research and development over the next five years. Joint ventures should also take advantage of the technical platforms that have been introduced to develop, improve and upgrade products in order to meet market demand in China. Of course, global sourcing is also key. 


 


Sohu: Are joint ventures required to develop independently branded cars?


 


Zhang: I think so. Joint ventures are necessary, in order to continually introduce new kinds of cars through united growth.


 


Chinese automakers in joint ventures have been relying too much on foreign parties, especially in the development of technical products. So the new plan calls for changes in modes of development of joint ventures. But we prefer not to use words such as “must” in the plan.


 


Sohu: Maybe “should” is the right word to use here?


 


Zhang: Yes, because it suggests guidance. If Shanghai-Volkswagen or Shanghai-GM insisted on introducing a whole series of products or new product platforms from the United States, for example, we would not stop them. But our policy should guide joint ventures in the development of independent brands.


 


JV dependency


 


Sohu: Did you ask any joint ventures to discuss the draft?


 


Zhang: No, we didn’t. But Chinese parties from joint ventures did take part in the discussions. 


 


Independent brands are a complex issue. It is important to encourage independent innovation in the development of new products. And it is not very difficult for joint ventures to follow. Many Chinese companies are able to improve products, and a few independently branded products have already sprung up in certain joint ventures. But this is not the same as having fully independent brands — that might be a more complex problem. 


 


Sohu: Can you explain it further?


 


Zhang: Basically, we can’t rely mainly on joint ventures for independent innovation. And we can’t expect joint ventures to develop independent brands.


 


Seven revisions


 


Sohu: What was on your mind when you were drafting the policy? Which points were revised the most, and what were you concerned about?


 


Zhang: Well, some thought we failed to clearly analyze a lot of the problems facing China’s automotive industry, but this was not true.


 


As I said earlier, we described these matters in a detailed draft that was as long as 100 pages. But the document was revised seven times, down to about 20 pages in the end. We even eliminated an entire chapter to avoid controversial issues.


 


Sohu: How many pages cover these problems in the current edition?


 


Zhang: One or two at most. We held meetings on two occasions: one was in Shanghai, where we invited major auto manufacturers to a discussion. The other was in Hangzhou, where a number of government departments were invited. Generally the two meetings yielded positive comments on the 11th Five-Year Plan, and we received a number of suggestions from people in different circles. Some could be accepted, others could not.


 


Sohu: Are any automakers worried about the ratio set for independent brands?


 


Zhang: Yes, of course. In the new plan, big automobile groups are required to achieve the most with their development platforms, but Shanghai Automotive Industry Corp. (SAIC) has said it could be difficult to reach this goal.


 


Sohu: But we all know SAIC has bought a complete set of technical platforms from MG Rover.


 


Zhang: The point is that we are talking about the capacity for Chinese independent brands, and this does not include technologies bought from foreign countries. So there are some difficulties. 


 


Sohu: So are purchased technologies not suitable for independent brands?


 


Zhang: Exactly. Besides, some automotive manufacturers complained of the rate of independent brands. SAIC also said that 60 percent is too high a goal to reach. But we couldn’t just set goals for SAIC. Although it’s a very large manufacturer in China, it lacks a perfect platform for independent brands. FAW is different — they have made cars and trucks as independent brands.  


 


Sohu: In the past, we often referred to FAW, SAIC and Dongfeng as China’s “Big Three” Automakers. Is this term still valid?


 


Zhang: I don’t think the idea of “core automakers in China” solely refers to these three manufacturers. Today the top automakers are changing the market competition, and it’s hard to say that FAW, SAIC and Dongfeng will be able to maintain their positions as the Big Three a few years from now. 


 


Sohu: Did any other suggestions come from auto manufacturers for the 11th Five-Year Plan?


Zhang: Yes, interests in Chongqing suggested that the industry should be geographically clustered in “car cities” and “auto bases”.


 


Sohu: As a policy maker, what did you think of the suggestion?  


 


Zhang: I think it would be difficult to put this suggestion into practice. We know the growth of an industry is determined by the market, not by the government. There are problems also connected to the State system, and there are also local attitudes to consider. If China called for the development of the western part of the country, for example, would it necessarily mean we’d have to concentrate new automobile-related industrial development there? What about other industrial bases in the northeast, southeast, and eastern parts of the country? It’s actually difficult to do this, because local advantages can show up everywhere.


 


(Translated by Witman Liao)

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