By Fang Yan and Ken Wills
BEIJING (Reuters) - Some years ago, the exact timing is unclear since it occurred behind closed doors, policy makers in Beijing cajoled car makers into building joint venture brands with foreign partners that could give the Chinese side access to much-coveted foreign technology.
Now, with a few JV brands hitting the roads, some Chinese carmakers say they never got near the cutting-edge foreign technology.
"Take a product 20 years-old and tweak a few parameters, it's like displaying mutton but handing over dog's meat," Xu Liuping, chairman of Chinese state auto group Chongqing Changan Automobile Co
"If this is can be counted as innovation, shame on the Chinese auto industry," Xu said. Chongqing Changan Automobile runs a venture with Ford Motor and Mazda Motor.
In 2009, China eclipsed the United States as the world's largest auto market, but its national car industry remains weak and fragmented, leaving 70 percent of the market to American, European, Japanese and, most recently, South Korean players.
It's not just state automakers who are grumbling. Independent players, reeling after Beijing stripped away tax incentives for small cars last year, are also crying foul.
"Looking at the JV brands out there, there is hardly anything genuinely creative. It's nothing more than a facelift of some old foreign technologies," an executive with a major independent carmaker told Reuters.
"Why do we need a JV brand? It can only make life much tougher for us," said the executive, who asked not to be identified for fear of offending the Chinese government.
For policy makers in Beijing, the rationale for new JV brands in a market already crowded with more than 85 foreign and Chinese brands was clear: nurturing China's own industry.
China's auto market had been on a hot streak until recently when it has reverted to a more subdued growth pattern after the government ended its tax incentives for small cars and subsidies for van buyers in rural areas at the end of last year.
Car sales edged up merely 6 percent from a year earlier in the first eight months, after jumping 33 percent in 2010 and 53 percent 2009.
Cruising the streets of major Chinese cities are vehicles from Buick, Toyota, Volkswagen, Audi, BMW and Mercedes Benz. Even in Shenzhen, the home turf of Warren Buffett-backed BYD (HKSE:1211.HK), sleek foreign cars, both imported and locally made, far outnumber BYD's F3, China's best-selling car for 2009 and 2010.
State auto groups, such as SAIC Motor (Shanghai:600104.SS) and Dongfeng Motor Group Co (HKSE:0489.HK), are still getting the majority of their sales from locally made GM, Volkswagen, Honda and Nissan marques.
Chery Automobile Co, BYD, Geely Automobile Holdings (HKSE:0175.HK) and other independent players are mostly competing with each other in lower-priced segments in lower-tier cities.
OPTING FOR SHORTCUTS
Policy makers thought if joint ventures could develop a car from scratch on their own, the Chinese partner could claim half the patent rights and more importantly, gain access to the technology.
But instead of building a car from scratch, all three joint ventures -- Shanghai-GM-Wuling (SGMW), Guangqi-Honda and Dongfeng-Nissan -- opted to take existing platforms of the foreign partners and make some changes and upgrades to "create" a new JV brand.
Baojun 630, the first JV car made by SGMW, GM's mini-van tie-up, is modeled after GM's Buick Excelle. Guangzhou Automobile Co (HKSE:2238.HK) and Honda Motor's Everus is based on the City, with Dongfeng and Nissan Motor's yet-to-be unveiled car, the Venucia, fashioned after the Tiida.
That means China's JV partners have created rivals to the country's national automakers without gaining the foreign technology.
"The intention was to have the JVs develop and build new cars together so that the Chinese side can learn something which could be beneficial to our own industry. But it didn't work out that way and the Chinese ended up hardly learning anything," Xu Changming, general director with the Information Resource unit of the State Information Center, told Reuters.
"The policy used to have both pros and cons. We can learn the technologies, but the JV brand could then be competing with our own brands. But there is only the flip side left."
For their part, foreign firms know that once the Chinese makers have their technology, local firms would no longer need a partner.
Foreign executives stress in interviews however, that contributions made by local partners are important.
"The Baojun 630 is a new car that was developed by SGMW and PATAC in China, leveraging GM's mature technologies, for Chinese customers," GM said in an emailed statement. PATAC is a Shanghai-based R&D facility jointly owned by GM and SAIC.
A Honda China spokesman said the "local DNA" of the Evrus model is "unquestionable." The R&D was handled by the JV and the Japanese automaker merely provided assistance when needed, the spokesman said.
Others declined to comment specifically on the dispute over technology transfers.
Still, the arrangement is beneficial for foreign automakers, which already dominate big, wealthy cities. The JV brands provide a product that allows them to tap the lower-tier cities, which are quickly becoming the next industry growth engine.
COMPETITION TO HEAT UP
Not all Chinese executives are grumbling, especially those at state auto groups that had a JV brand on the drawing board.
"The market is diversified. Having a JV brand in the works is better than having nothing," Liu Weidong, deputy general manager of Dongfeng, told an industry forum recently.
Dongfeng and Nissan are now working on the Venucia, whose portfolio also includes an electric sedan.
Despite grumbling over technology, JV brands are poised to grab market share from the Geelys and Cherys in inland areas, industry observers say.
Honda's Everus is priced as low as 69,800 yuan ($10,933.584), on par with BYD's F3. Baojun 630, which is fetching 62,800-73,800 yuan, is equally attractive.
GM and its partner are now adding more than 120 sales outlets for the Baojun 630, which was rolled out last month.
"It's just the start," said Feng Liang, an analyst with Guodu Securities. "We will see more and more JV brands on the road, and that could be a real threat to the local brands."
($1 = 6.384 Chinese yuan)
(Editing by Matt Driskill)