Arthur Kroeber

So they said, okay, we have to have a big auto industry.

This is one of the key industries that we have to support.

So starting in the early 1990s, they had this strategy of bringing in foreign companies, making them do joint ventures on a 50-50 basis with Chinese auto companies.

And the theory was that eventually the Chinese companies would learn and then you would be able to, you know, develop your own national champion auto companies and, you know, kick the foreigners out, right?

And basically this failed.

It failed massively.

Over the next 25 years, foreign companies came in, General Motors, VW, Toyota, Honda, and so forth.

And they did very, very well.

And the joint venture partners in China basically just sat around and clipped coupons from the dividends that these companies – that these joint ventures were producing.

All of the technological inputs continuously came from the foreign partners.

All of the design ideas that the local partners were never able to succeed.

And in volume terms, you had a lot of smaller scale locally sponsored companies.

vehicle companies in China, building kind of low-end vehicles.

So a lot of the cars that wound up getting made in China were made by local firms.

But if you look at the share of profits and total value in the system, it was dominated by these joint ventures, which were in turn dominated by the foreign partners.

China, circa 2010, 2015, had been doing this for 25 years, and they were basically no closer to having globally competitive conventional car makers than they had been 25 years before.

In the late 2000s, 2005, 2010, they started thinking, well, this and other related kind of industrial policies are not working very well.

We are not generating the national champions that we thought we were going to do.

So what do we do about this?

And their answer was leapfrog.