The giant has awakened and the tremor of its rise is moving the world.
Star-struck investors from the West are funneling billions into Chinese business and operations to capture a foothold in the world's biggest untapped market. But political volatility, military maneuvering and cold spells with superpowers such as the U.S. are cause for some healthy wariness by trade watchers in the west. Investment in China may be running high, but so is the risk.
Since declaring automaking as a pillar industry in the country's ninth Five-year Plan (1996-2000), China has reeled in a multitude of parts ventures including more than 40 deals with U.S. companies, about a dozen European ventures and roughly 15 Japanese partnerships.
Meanwhile, automakers have been jockeying for major vehicle-assembly ventures. Those willing to meet stringent Chinese demands have been rewarded.
Mercedes-Benz AG beat out Ford Motor Co. and Chrysler Corp. for a $1 billion minivan venture in South China designed to chum out 60,000 Viano luxury vans and 100,000 engines by 2000.
General Motors Corp. disappointed Ford and Toyota Motor Corp. by winning rights to a $1 billion midsize sedan/minivan assembly venture in Shanghai. The project is slated to build up to 100,000 units of the next-generation Buick Regal in 1998 and possibly the new GM minivan. Start-up of both ventures hinges upon the successful outcome of feasibility studies.
A little luck and the promise of great things helped GM nail down the deal in a year when Sino-U.S. diplomatic relations soured. But industry observers believe U.S. automakers' luck will run out if relations do not sweeten soon.
"When you make investments in China, you are risking your money," asserts a top trade official at the Taiwan embassy. "It's pretty obvious that U.S.-Sino relations are worsening, and other foreign companies may take share from U.S. companies in China," he says.
The major rifts between the U.S. and China include:
Trade -- The U.S. claims China still is not doing enough to curb piracy of U.S. intellectual property, despite its eleventh-hour proposal to do more in February. The U.S. was set to in!pose $1.1 billion in sanctions on Chinese goods, and China threatened to call off all automotive-related negotiations with American companies. The issue remains on the front-burner.
Taiwan -- China's political and military efforts to influence last month's presidential election in Taiwan created tension in the region. China considers Taiwan a renegade province and eventually hopes to absorb the island nation. The U.S. has warned China against a possible attack, and such action appears unlikely for now.
Human rights -- The U.S. government criticizes China for detaining political dissidents, and for other human rights abuses. The issue is still linked with the annual renewal of China's most-favored-nation trade status.
Nuclear proliferation -- China allegedly has been selling nuclear and missile technology to Iran and Pakistan. If proved, U.S. law would require it to impose economic sanctions against China.
The issue of technology transfer is fast becoming a stumbling block in automakers' negotiations for new business in China. In fact, a Chrysler source confirms the company lost the van deal to Mercedes because it simply was not willing to meet China's enormous technology-transfer requirements.
GM, however, has chosen to comply and even help educate China's workforce by implementing engineering and research programs.
"China's hope is to be able to use foreign manufacturing processes on their own and possibly sell those vehicles and export them to other countries. Suddenly, you'll find yourself competing with your own product:' says the Chrysler official.
Both GM and Ford believe the current political tensions will not affect their long-term business, and they remain focused on penetrating the market.
GM's Delphi Automotive Systems subsidiary, which now has 10 joint ventures and four licensing agreements in China, has no plans to taper its investments.
"I look at China in the 20-year horizon," says Delphi President J.T. Battenberg. "I'm not too concerned about short-term problems, whether it be political or a taxation situation. We're going to get in early, and we'll continue to be aggressive."
