Why China’s Bid for Auto Self-Sufficiency May Fail

For years, what’s good for General Motors and Volkswagen has been great for China’s largest state-owned carmakers. In the 1990s the Chinese government required foreign players to enter joint ventures with domestic partners to operate in the country. GM teamed up with state-backed SAIC Motor; Volkswagen joined with government-controlled China FAW Group. The Western automakers got access to what’s become the world’s biggest auto market. Their Chinese partners got technology and half the profits, which was supposed to allow them to become global players.

As China’s newly affluent consumers bought their first autos, often with a Buick or VW badge on the hood, the Chinese companies reaped hundreds of millions in profits from their privileged positions. But lately the market has changed. China’s chosen champions such as SAIC and FAW are struggling as private-sector rivals Great Wall Motor and Zhejiang Geely Holding Group move faster to cater to China’s accelerating demand for cheap SUVs.