Fragmented Liberalization in the Chinese Automotive Industry: The Political Logic behind Beijing Hyundai's Success in the Chinese Market

Abstract

This paper explains the extraordinary rise of the Beijing Hyundai Motor Company (BHMC), a joint venture between a state-owned enterprise run by the Beijing municipal government and Hyundai Motor Company. Within the span of three years, the BHMC soared to become China's second-ranked automotive manufacturer in terms of units sold. I highlight the role of the Beijing municipal government in creating favourable market conditions for the BHMC during its initial operation phase (2002)(2003)(2004)(2005). The Beijing municipal government selectively adopted protectionist measures and liberalizing measures to promote its locally based company. I characterize this practice as fragmented liberalization, a system through which sub-national governments discriminately apply WTO or central government regulations to promote their local joint venture partner. In so doing, I also challenge the existing assumption that multinational companies are the drivers of economic liberalization, by showing Hyundai's support for local protectionism and industrial policy at the sub-national level.

Is there an East Asian model of MNC internationalization? A comparative analysis of Japanese and Korean firms

“…Hyundai thereby entered China much later than most major Western and Japanese automobile firms (Oh 2013). However, Hyundai's market entry into China was prepared with a lead time of six to seven years by developing a pool of expatriate managers for its future operations who learned Chinese and established relationships with local stakeholders (Chang and Park 2012).…”

“…Shortly, after China's WTO accession and following the Chinese government's requirements for inward FDI in the automobile industry, Hyundai entered a 50:50 joint venture with the local SOE Beijing Automobile Industry Holding Company in April 2002 (Oh 2013) and soon thereafter started producing and selling its mainstream car models in China. It became the second largest market automobile company in China by market share as soon as 2005 and thereafter further increased its production by setting up two additional factories.…”

“…Hyundai is currently building another two additional factories in China and plans to increase its annual production capacity in the country to 2.7 million units by 2018 (ChosunBiz 2015). Hyundai's initial fast growth in China was supported by its insider status (Chang and Park 2012;Oh 2013). As various Hyundai managers were preparing for the market entry, they had built networks with important local stakeholders, including government officials.…”

“…The local government in Beijing, empowered by the factual decentralization of administrative power after China's WTO entry, was keen to develop the local economy by increasing automobile production through a joint venture of its local automobile SOE (Beijing Automobile Industry Holding Company) with a foreign partner. After a meeting of Hyundai Chairman Chung Mong-koo with a high-ranking local Chinese government official in 2001, Hyundai was not only selected as joint venture partner, but the Chinese side also supported the business by expediting administrative procedures and providing assistance in land purchase, infrastructure development and staff recruitment (Oh 2013).…”

Shifting gears: industrial policy and automotive industry after the 2008 financial crisis

“…China's Ministry of Commerce announced the initiation of such trade remedy shortly after the Obama 56 Oh (2013). 57 Oh (2014 administration decided in September 2009 to impose a safeguard measure against Chinese tire imports.…”