Weighing up the China threat to US auto industry
By Pauline ChiouAuto jobs in the U.S. shipped off to China. That's the refrain we heard over and over in the U.S. presidential debates. Even though the election is over, the China bashing surely will not go away. Is there truth to these claims or was it political rhetoric that played well to an American public fighting high unemployment?
December 10, 2012, 12:22 am TWN
I posed the question to Michael Dunne, an American with a unique perspective. He's an auto industry consultant who grew up in Michigan, lives in Indonesia and covers the auto sector all over Asia.
“My contacts in the U.S. say it was all 90 percent political posturing to win votes,” he said. “The U.S. auto market is doing the best it has done in five years.” Ironically, much of that is because of the Chinese market itself.
Let's take General Motors. In the third quarter of this year, GM earned US$1.5 billion in profits. US$600 million of that was from Chinese consumers. This also helped offset a half billion dollar loss in Europe.
Critics will point out American cars sold in China are manufactured in China through Beijing-mandated joint ventures. These are manufacturing jobs that are not going to Americans. Here's the counterargument: Cars manufactured outside of China are subject to huge import duties starting at 25 percent. Then there are other taxes like VAT and excise tax. According to Dunne, a Jeep Grand Cherokee that might normally sell for US$45,000 in the U.S. would sell for US$84,000 in China after you include all the import-related duties.
So that brings us to the next question: Why can't the U.S. get China to reduce import duties? Easier said than done. Anyone who wants a piece of the 1.3-billion-person Chinese market has to play by Beijing's rules. Foreign companies who set up shop in China must partner up with a Chinese enterprise in a joint venture and the foreign company will never own more than 50 percent of that joint venture. In other words, China will always be the majority stakeholder.
In the last presidential debate, Obama talked about leveling the playing field with China. In September, his administration filed a complaint with the World Trade Organization accusing China of unfairly subsidizing its auto exports and auto parts. Many observers say the process lacks teeth because a WTO ruling could take up to a year and enforcement is difficult.
During the campaign, Obama was pressed into playing a tougher game of hardball against China. Diplomacy is a delicate dance especially when you're dealing with the world's two largest economies, “The Chinese have a very strange paradoxical concern about the United States,” Kishore Mahbubani, dean of Singapore's Lee Kuan Yew School of Public Policy, told CNN's Fareed Zakaria recently. “On the one hand, they don't want to have an America that's too strong, too aggressive, pushing China in the Pacific region. At the same time, China also realizes that an America that's weakened too much is also bad for them. The Chinese at the end of the day want a strong global economy.”
Pauline Chiou is a CNN anchor/correspondent based in Hong Kong. Follow Pauline on Twitter @PaulineCNN. For more business coverage, go to www.cnn.com/business