China Should Stop ‘Micromanaging’ Auto Industry, Researcher Says

May 24, 2013 Leave a comment

China Should Stop ‘Micromanaging’ Auto Industry, Researcher Says

China should refrain from “micromanaging” the automotive industry and allow market competition to spur innovation and weed out weaker automakers, the Chinese Academy of Social Sciences said in a report.

The government should focus instead on building a fair and competitive environment and abandon monopolistic polices aimed at creating fewer and bigger automakers, the state-backed research institute said in an annual report on industrial competitiveness released this week.“A fair and competitive market is the most effective mechanism for promoting innovation,” according to the report by the academy, which provides research to the State Council, or cabinet. “This isn’t to say the government isn’t important. On the contrary, it is asking more of the government, to transform from being a direct participant to that of an enabler.”

The recommendations in the report stand in contrast to China’s auto policy of encouraging mergers and reorganizations in the industry in order to create two to three large domestic carmakers that can compete with companies like General Motors Co. (GM), which is spending $11 billion by 2016 to expand in China.

China’s auto market is dominated by foreign joint ventures, which accounted for 95 percent of passenger-vehicle profits in 2011, according to the academy. Chinese automakers are overly reliant on their foreign partners like GM and Toyota Motor Corp. (7203), which retain tight control over key functions such as research and development, branding, design, and components, the report said.

To help local automakers progress to making higher-end products, the government should increase its financial support for research and development, the report said. Only eight percent of automaker employees in China are in technical positions, compared with about 30 percent in developed markets, according to the report.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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