6 - Economic Fragmentation and Foreign Direct Investment

Summary

In 1993, Li Lanqing, then China's vice premier of the State Council, recounted a visit he paid to a truck factory in Chongqing, Sichuan province:

What is really interesting is my visit to a factory in Chongqing, producing a certain “Liberation” truck. [“Liberation” is a popular truck model in China.] But the name of the truck was not Liberation; it was, instead, “Forever Forward.” I commented to the manager that you have a good name, indicating your willingness to march forward bravely. He [the manager] replied that in fact the name literally meant what it said. The truck did not have a reverse gear; it could only move forward.

This observation is a powerful statement about the state of the Chinese automotive industry in the 1990s. As pointed out in Chapter 3, in 1998, there were 115 motor vehicle assembly firms in China. The average output volume was only 14,165 units. While in other countries, automotive industries are clustered together geographically, China displays a highly dispersed pattern. In 1995, there were motor vehicle assembly plants in all but two provinces, Tibet and Qinghai, two extremely poor and rural high-altitude provinces. The Chinese government had long recognized this severe fragmentation and launched several major administrative initiatives to consolidate the industry, in the 1980s and 1990s. So far, the efforts have not been successful.