Globalization, Market Transition, and Variety of Developmental Models: a comparison of Four Automakers in the Chinese Car Industry

6.1 Four Developmental Models under Social Construction

Commonly-used theoretical tools have limitations to the explanation of this research question. Transition economy literatures in general focus on ownership and consequent economic performance without much attention to how technological strategies could possibly be related to ownership. On the other hand, there are indeed numerous perspectives offering insights into variation in technological upgrading performance among economic organizations. The size of an enterprise is stressed by economists as a critical indicator for R&D capacities. Foreign corporation affiliations is a well-acknowledged factor in current globalization studies, and the role of developmental states are emphasized to explain successful upgrading in East Asia by state-centered analyses. These factors suggest that a large, foreign-affiliated and state-supported car maker would be more likely to successfully conduct technological upgrading in comparison with small companies that are not state supported or affiliated with foreign companies. However, the Chinese car industry tells the opposite story.

The theoretical perspective used in this study is based on a social construction approach, which attaches importance to the roles of ideas, local political structure, and agency to the emergent shape of ownership and technological strategy implemented by different car enterprises across China. Such an approach argues that due to the historical path dependency of the previous planned economy era, the market transition in China has generated various types of sub-national political structures. These institutionalized architectures have created different local actors with disproportionate powers in the regional economic development. This view also highlights the ideas of the involved actors concerning the local car industry as a critical cognitive mechanism through which rationalities and interest perceptions lead the involved actors in the local car projects. These ideas, in competition or coordination, are fundamental clues to an understanding of the strategies and interactions of the local actors. This perspective finally introduces agency into the analysis. In local car projects, development ideas need to be mobilized and implemented by local political structures and actors. At the same time, agency is always bounded by constraining political structures and shaped by the cognitive factors. The process of idea generation and implementation as they pertain to local car projects intensively reflects the roles of ideas and political structures and makes up the basic social construction process.

The different developmental models among the Chinese car makers are interpreted through four representative cases. The empirical findings for these four cases is summarized in Figure 19. As can be seen from this illustration, the four Chinese car makers experienced the economic reform and opening to globalization differently which resulted in unique patterns of organization ownership and technological strategy. Such an empirical comparison validates the importance of social construction in the interpretation of the varying developmental models present in the Chinese car industry.

The sub-national political structure takes various forms in different regions, making the investigation of local institutional architecture as they define relevant actors and distribute political powers a basic variable for the study. The central government maintained authority in Jilin (Changchun) after the economic reform but lost most of its influence in Zhejiang, where the private economy became central to local development. In both cases, the roles of local governments were not significant, in contrast to the overwhelming roles played in both Shanghai and Anhui (Wuhu). Nonetheless, the former enjoyed a prestigious relationship with the central government while the latter did not.

These political structures, which emerged during market transition, are indebted to historical legacies traced back to planned economy era. Jilin’s historical role as the nation’s heavy industry base provided a major justification for the persistent role of the central government in the management of FAW. The uniquely important economic position of Shanghai planned era made local officials prestigious enough to lead the development of its own car project and creation of the first joint venture. As a place long forgotten by the central administration, Zhejiang’s active private economy emerged in part from the weak penetration of the planned economy. Finally, Anhui’s traditional role as a resource-contributing region that receives little investment from above provided local officials with the opportunity to play a central role in decision making.

The developmental idea as another critical variable in this approach serves as a critical cognition mechanism, as it represents the rationality behind the different actors legitimately involved in local car projects. The ideology of the central government in the car industry set a basic tone for any car project in China. Separately discussed in several chapters, the ideas of domestic production promotion by import substitution, introduction of technologies via joint venture, and concentration of industry structure through directory management composed the major rationales of the central government. However, the central government’s template was not universally adopted at the local level.

Of the four cases, FAW may be the only one to take ideas from above while making complaints. FAW’s consideration was straightforward; as an out-dated enterprise created before market transition, there was no better option than to closely work with the central government to facilitate its own technological upgrading. For Shanghai Automobile, it was the local municipal government that invented the joint venture method and then got approval from the central government through political lobbying. In these two cases, the ideas held by the central government were locally welcomed because FAW and Shanghai automobile were both among a few enterprises chosen by the central government to make cars. However there were “outsiders” holding strong incentives to make cars either for local economic development in the case of Anhui’s Chery Auto or for business concerns in the case of Li Shufu’s Geely Auto. In these two cases, local ideas seriously conflicted with national industrial policy.

How political structures and developmental ideas led to different ownership patterns and technological strategies was intensively demonstrated through the local social construction processes driven by agency on the part of various actors. In the case of FAW, the story is mainly about how directions came from the central government and were then implemented by FAW and the local governments. By comparison, for the case of Geely Auto, the scenario was opposite; the private enterprise hid its car-making intentions to avoid punishment from above and meanwhile searched for means to get legitimate status. Consequentially, the local car project had to be self-reliant because a joint venture project required the nod of the central officials. On the other hand, strategies and actions of local states were the major content for the social construction processes of Shanghai Automobile and Chery Auto. For the former, the process was basically harmonious. The local government got special acknowledgement and support from the central administration to gain approval for what was otherwise a rule-breaking joint venture. However, for the latter, the local government had to develop a series of strategies to deal with a hostile environment in which the local car project was considered in violation of the national industrial policy. Similar to Geely Auto, making cars without joint ventures became the only solution for Chery Auto.

This study has multiple theoretical implications. First of all, the existence of local social construction processes sheds light on the market transition literatures because it shows that a transition economy may be far more complicated than commonly assumed. The role of the state in the market transition should be treated more carefully. In this study, a general marketilization trend was apparent at the macro-level. However, as illustrated in the four cases, such a process was absolutely not a simple replacement of states with the rising market. Both the central state and the local states carried strong influences on local economies. More importantly, in light of the findings in the Chinese car industry, this study suggests that a transitional economy may experience multiple transformations at the sub-national level. Depending on the specific historical institutional legacies inherited from the planned economy era, the central government, local governments, the previously-established state-owned enterprises, and newly-rising private-owned enterprises may combine into varying power structures. Holding separate ideas and interests, these actors could generate varying developmental models applicable to enterprises at the local level.

In exploring how the Chinese car enterprises developed their technological strategies in the face of the introduction of foreign automakers, this study also contributes to the current globalization literature, especially with regards to how globalization is intertwined with transitional economies. At least in the Chinese car industry, globalization became embedded in a domestic political process. That is, although foreign car makers were a necessary actor in any proposed joint venture project, these transnational corporations themselves held limited influence on whether and how the car project would work. It was the domestic players who steered the whole process. Particularly, the role of ideas was critical here. In the Chinese car industry, the central government developed a clear logic of exchanging market share in the Chinese market for advanced technologies and implemented this strategy via industrial policies. Such a cognitive framework constrained all foreign corporations in some fundamental aspects; only joint ventures, where foreign capital would hold a minority stake, granted legitimate entry into domestic production for foreign companies.. Therefore, the present study suggests that the domestic institutional environment should be an indispensible dimension to fully understand how globalization influences the economy of a certain nation, especially for the transition economies where the market institutions generally cannot be assumed as given.

The approach applied in this study is an attempt to integrate two major types of institutionalism prevalent in the current social science literature, namely organizational and historical institutionalism, and to demonstrate the complementarities of these two major institutionalism perspectives. Organizational institutionalism takes the cognitive-related mechanisms as the major tool for understanding the structures and behaviors of organizations, while major attention for historical institutionalism is the historically-formed political structures. This study proposes that developmental ideas and political structures are both important in decoding the varying developmental models employed among these Chinese car enterprises. Without developmental ideas, the local political structures themselves may not generate the forms of any of the car industries observed. In fact, the local political structures discussed in these cases also broadly existed in other regions of China. Thus, if the independent role of ideas are not acknowledged, researchers would have great difficulty explaining why Jilin (Changchun), Shanghai, Anhui (Wuhu) and Zhejiang (Taizhou) could develop their car enterprises when other regions possessed the same local political structures. On the other hand, ideas alone cannot interpret the research question. Without local political structures to set the stage and assign the actors with different roles, ideas would only be useless imaginations.

This study may be illuminating to sector-specific or region-comparative studies in China. Across the different branches of the Chinese economy, the multi-model phenomenon was not unique in car manufacturing, but also broadly existed in sectors such as electronics, textiles and apparel, raw materials, and even agriculture. Thus, the social construction approach adopted in this study could serve as a basic tool for researchers in exploring varying developmental paths inside these sectors. In addition, this study has closely associated the varying car-making models with the local political structures and developmental ideas. Because of this, it serves as a powerful model for comparative regional work, which has recently become a popular research topic in China studies.

Finally, this comparative study may inspire further research into the Chinese car industry, especially studies linking the Chinese models to the other well-acknowledged developmental models present in the world automobile industry. For instance, a study focused on Asian industries could utilize he Japanese and Korea car industries as classical cases for a developmental model, one where the government strategically led the domestic automobile enterprises as they developed into successful national cars makers and promoted learning from foreign automakers. However other Asian countries, such as Thailand, obviously followed another track, one in which the foreign corporations are encouraged to set up automobile enterprises and then are encouraged to export. India might represent another model, one where the central government closed the door to foreign investors in the car sector and actively encouraged the emergence of national car makers. How different are the developmental models identified in this study from these Asian models and what institutional mechanisms could be possibly shared among these cases, though at the national rather than the local level? These questions might be interesting for future studies.