During 2005, we exported approximately $42 billion in goods to China but we also imported approximately $243 billion from China. Many of the goods that we imported would be considered labor intensive products. For example, we purchased $23 billion of clocks, $20 billion of toys, and $41 billion in apparel and related goods (3-digit SIC code 400) from China. One might also be surprised that we purchased $42 billion of computer related products (3-digit SIC code 213) from China. So what will we eventually export to China?
One example of a good that requires both technology and capital intensive production is the automobile, so maybe the Chinese will purchase cars from Detroit. Alas, we exported only $44 billion in motor vehicles during 2005 as we imported $146 billion in motor vehicles. It seems that the Japanese automobile companies doing a better job of marketing their products even to U.S. consumers.
Irina Aervitz is a Ph.D. candidate in the political science department at Miami University in Oxford, Ohio who is currently writing her dissertation on state policies in the Chinese and Russian automotive sectors and the author of this:
It is not news that the production capacity of China’s automotive industry is growing fast. The news is that its technological sophistication is speedily improving too. Until the recent past, most Chinese companies relied on their foreign joint-venture partners for technology. However, that situation is changing. Chinese companies are becoming more and more self-sufficient by purchasing technology from foreign companies without engaging in joint-venture arrangements. This trend can be attributed to the recent financial successes of Chinese auto enterprises that invested their resources in buying or developing technology. One of the examples is Beijing-based Beiqi Foton Motor Co Ltd, or Foton. Foton is a largely “self-made” company; its experience with joint ventures is very limited. A new state-owned enterprise, Foton was established in 1996. In 2004, its sales volume reached about 350,000 automobiles. In 1998, the firm was listed on the Shanghai stock exchange. Since 1999 Foton’s light duty truck has been ranked No 1 in sales among Chinese companies. In 2004, 341,000 vehicles were sold and brand value amounted to 10.6 billion yuan US$1,3 billion). Foton’s development speed and growth rate are astonishing. The company not only sells in China, but also exports – about 9,000 units in 2004. Foton exports to the Middle East, Eastern Europe, Southeast Asia and Africa. Light duty and medium-heavy duty trucks are popular in these areas of the world because of the affordable price. The key to success is the market niche that the company occupies – it produces trucks and buses.
It seems that the policy of the Chinese government is to negotiate for the technology of companies such as DaimlerChrysler and Nissan:
Namely, the authorities of the special economic zones (SEZs)and Beijing’s policy to encourage exports. SEZs are interested in attracting investors, so they negotiate with the central government on behalf of prospective investors and push the projects forward. DaimlerChrysler’s joint venture with Foton was not intended to be located in a SEZ. In fact, DaimlerChrysler was initially interested in using Foton production facilities as part of the joint-venture agreement rather than building a new factory. Furthermore, there are not many “single” large Chinese auto manufacturers left today in SEZs to have a joint venture with – most are already “taken”. For example, Dongfeng is married to Nissan (Nissan is part of the Renault group, the major competitor of Mercedes Benz in Europe), China National Heavy Duty Truck Group Co Ltd (CNHTC) is married to Volvo, etc. For DaimlerChrysler, irrespective of business-related factors, Foton was the only truck manufacturer left on the dance floor. Chinese companies have shifted their focus from relying on joint ventures with foreign partners as a source of technology to being more independent. Foton seeks cooperation with a variety of partners. The company purchases technology or consulting services; for example, an English consulting company, Lotus, is assisting Foton in fulfilling some R&D projects. The lack of commitment from Foton towards a joint venture with DaimlerChrysler demonstrates a shift in technology appropriation strategy among Chinese auto enterprises. Foton wants technology, but does not want to share its profits with a foreign partner in a joint venture.
Given China’s propensity to save, the nation is becoming less capital scarce. So perhaps all China needs is our technology so they can produce the cars that their citizens will be driving in the future.
Update: My use of the term SIC code was not quite right. Besides I could have easily provided this link to U.S. Imports from China from 2001 to 2005 By 5-digit End-Use Code.