But what if the west and other emerging markets don't have an inventory of spares to repair Chinese exported vehicles, when the inevitable small components fail, or if, Lord forbid, some form of trade war breaks out between the west and china? Where will that leave these cheap chinese exports, especially if some firms go bust?
China is run by professionals with IQs of 140 and 25 years successful experience running states, factories, and Fortune 500 companies. That makes a bigger difference than any subsidy could.
IMO "China speed" is a thing most westerners do not understand. We are accustomed to "western speed" of multiple bureaucracies, analysis, following a set pattern and an employing an MBA mindset. Whereas in China the government is willing to play venture capitalist with the reward not being share ownership, but GDP growth and technological advancement.
Right now the automotive industry in China is also going through a consolidation phase to weed out the weakest. In a few years, the number of Chinese automakers will be down to handful of maybe 5 companies. This is consistent with auto industry in the US. According to Wikipedia the industry started with Duryea Motors in 1895, in time at least 1,900 different companies had been formed, producing over 3,000 makes of American automobiles. However by 1955 a few US companies - General Motors, Ford, Chrysler, American Motors (Nash-Hudson), and Studebaker-Packard - accounted for 99.7% of all cars made in the US.
Germany has had over capacity for suc decades, Japan has had over capacity for four decades, Korea has had over capacity for a decade.
The United State’s Microsoft, Apple, etc. have huge over capacity. France, Spain and Italy have an over capacity of wine. Saudi Arabia has an over capacity of oil.
When did “over capacity” become a dirty word?
The hypocrisy inherent the very use of the term as pejorative is breathtaking.
Great and insightful article. It's not shocking to see VW shutting its plant for the first time in its history; Honda, Nissan & Mitsubishi merging together to stay relevant on a global scale; Tesla suffering from over production; well, nothing excited can be said for GM and Ford; breakup news of Stellantis could come at any time.
Amidst all this, a few companies are winning at every stage - BYD, Toyota and Hyundai. BYD is all about its young leadership and speed. They have built their own tech stack and it's amazing. Toyota is a big daddy, who has seen it all and plays its game like a Grandmaster. Hyundai is a Korean masterpiece, an organisation run with a military precision. I wouldn't be surprised if Hyundai announces 7 days workweek starting tomorrow.
All said, automotive will still remain a capital intensive business. If capital is easy to get in China, they have a head start. How well you deploy that capital and do so consistently, will make all the difference in the longer run. A crazy future awaits.
Germany has had over capacity for suc decades, Japan has had over capacity for four decades, Korea has had over capacity for a decade.
The United State’s Microsoft, Apple, etc. have huge over capacity. France, Spain and Italy have an over capacity of wine. Saudi Arabia has an over capacity of oil.
When did “over capacity” become a dirty word?
The hypocrisy inherent the very use of the term as pejorative is breathtaking.
The “license,” (of technology and marketing rights), as you call it, from a western auto company to a Chinese company is mandatory if the western company wants to do business in China. In other words, outright theft. Happening in most industries in China in anticipation of Chinese domestic production to become independent.
THE CHINESE MANUFACTURING GLUT THAT HAS NO OR INADEQUATE INTERNAL MARKET DEMAND, MUST CONSUME SOME EXTERNAL MARKET TO SURVIVE--IF THE USA AND EUROPE CLOSE THEIR DOORS (AS I BELIEVE THEY MUST) AND NECESSARILY ACCEPT THE SUPPLY SIDE INFLATION HIT--THEN THE EMERGING MARKETS WILL BE THE NEXT TO BE GUTTED BY THESE CHEAP CHINESE EXPORTS....EVENTUALLY THE EMERGING MARKETS IN ASIA AND ELSEWHERE, WILL WAKE UP AND CLOSE DOORS, LEAVING THE CHINESE STATE LOANS AND EXCESS MANUFACTURING TO AUTO CORRECT AT THEIR OWN EXPENSE NOT OURS...A LESSON WILL THEN HAVE BEEN LEARNED....
But what if the west and other emerging markets don't have an inventory of spares to repair Chinese exported vehicles, when the inevitable small components fail, or if, Lord forbid, some form of trade war breaks out between the west and china? Where will that leave these cheap chinese exports, especially if some firms go bust?
China is run by professionals with IQs of 140 and 25 years successful experience running states, factories, and Fortune 500 companies. That makes a bigger difference than any subsidy could.
IMO "China speed" is a thing most westerners do not understand. We are accustomed to "western speed" of multiple bureaucracies, analysis, following a set pattern and an employing an MBA mindset. Whereas in China the government is willing to play venture capitalist with the reward not being share ownership, but GDP growth and technological advancement.
Right now the automotive industry in China is also going through a consolidation phase to weed out the weakest. In a few years, the number of Chinese automakers will be down to handful of maybe 5 companies. This is consistent with auto industry in the US. According to Wikipedia the industry started with Duryea Motors in 1895, in time at least 1,900 different companies had been formed, producing over 3,000 makes of American automobiles. However by 1955 a few US companies - General Motors, Ford, Chrysler, American Motors (Nash-Hudson), and Studebaker-Packard - accounted for 99.7% of all cars made in the US.
Germany has had over capacity for suc decades, Japan has had over capacity for four decades, Korea has had over capacity for a decade.
The United State’s Microsoft, Apple, etc. have huge over capacity. France, Spain and Italy have an over capacity of wine. Saudi Arabia has an over capacity of oil.
When did “over capacity” become a dirty word?
The hypocrisy inherent the very use of the term as pejorative is breathtaking.
For China Win Win means I win win and you lose lose
Great and insightful article. It's not shocking to see VW shutting its plant for the first time in its history; Honda, Nissan & Mitsubishi merging together to stay relevant on a global scale; Tesla suffering from over production; well, nothing excited can be said for GM and Ford; breakup news of Stellantis could come at any time.
Amidst all this, a few companies are winning at every stage - BYD, Toyota and Hyundai. BYD is all about its young leadership and speed. They have built their own tech stack and it's amazing. Toyota is a big daddy, who has seen it all and plays its game like a Grandmaster. Hyundai is a Korean masterpiece, an organisation run with a military precision. I wouldn't be surprised if Hyundai announces 7 days workweek starting tomorrow.
All said, automotive will still remain a capital intensive business. If capital is easy to get in China, they have a head start. How well you deploy that capital and do so consistently, will make all the difference in the longer run. A crazy future awaits.
Germany has had over capacity for suc decades, Japan has had over capacity for four decades, Korea has had over capacity for a decade.
The United State’s Microsoft, Apple, etc. have huge over capacity. France, Spain and Italy have an over capacity of wine. Saudi Arabia has an over capacity of oil.
When did “over capacity” become a dirty word?
The hypocrisy inherent the very use of the term as pejorative is breathtaking.
Your news feed first got my attention when I saw an article on BYD, which I've been considering investing in. This is some eye-opening information.
The “license,” (of technology and marketing rights), as you call it, from a western auto company to a Chinese company is mandatory if the western company wants to do business in China. In other words, outright theft. Happening in most industries in China in anticipation of Chinese domestic production to become independent.
👍 article. I did business over there, it's an eye opener. Bring a mask with carbon cartridges, the air is poison.
Great post! And I just listened to Ken on the New Books in Chinese Studies podcast--also great content. Thanks to you both! DD
THE CHINESE MANUFACTURING GLUT THAT HAS NO OR INADEQUATE INTERNAL MARKET DEMAND, MUST CONSUME SOME EXTERNAL MARKET TO SURVIVE--IF THE USA AND EUROPE CLOSE THEIR DOORS (AS I BELIEVE THEY MUST) AND NECESSARILY ACCEPT THE SUPPLY SIDE INFLATION HIT--THEN THE EMERGING MARKETS WILL BE THE NEXT TO BE GUTTED BY THESE CHEAP CHINESE EXPORTS....EVENTUALLY THE EMERGING MARKETS IN ASIA AND ELSEWHERE, WILL WAKE UP AND CLOSE DOORS, LEAVING THE CHINESE STATE LOANS AND EXCESS MANUFACTURING TO AUTO CORRECT AT THEIR OWN EXPENSE NOT OURS...A LESSON WILL THEN HAVE BEEN LEARNED....
awesome Michael!
So what is the likely best strategic response from the West? TARIFFS AND NATIONWIDE SUBSIDIES TO KEY COMPETING TECHNOLOGICAL INDUSTRIES?
Space, rare earth mining, solar panels automotive, chip manufacture?