BIZCHINA> 30 Years of Reforms
Driving force
By Li Fangfang (China Daily)
Updated: 2008-08-12 09:10

The birth of a joint venture

In May, 1984, Li Peng, then-vice premier, paid a visit to Wolfsburg, Volkswagen's headquarters during an official trip to Germany.

"I saw two most advanced assembly lines controlled by computers, with the capability to assemble 600 units of vehicles per day and I test rode an Audi driven by Hahn at a speed of 175 km per hour. Hahn stressed to me his confidence in cooperating with China," Li said.

"(Li) promised before he left our headquarters that we would sign the joint venture contract in October," said Hahn.

Li's visit sped up the negotiations and in October, during German Premier Helmut Kohl's visit to China, the joint venture contract between Shanghai Automotive Industry Corp and Volkswagen was eventually signed, under a term of 25 years.

"The 50-50 investment measure and most terms in the SVW contract later became the main items in China's joint venture law and is continued to be used by most ventures today," Zhang Suixin, executive vice-president of Volkswagen Group China tells China Business Weekly.

"The birth of SVW put an end to China's history of making cars behind closed doors at a low technical level and blazed a path of utilizing foreign capital and introducing overseas technology for an accelerated development of the Chinese car making industry," says Zhang.

However, the shabby equipment and backward technology caused lots of doubt when Shanghai Volkswagen planted the seeds of China's modern car industry in farmlands located in the Shanghai outskirts of Anting town.

A reporter from the German Mirror Weekly ruthlessly affirmed: "to produce cars in a ruined, unsupported and isolated island, the experiment is doomed to fail".

The poor situation caused workers to fight. Shanghai Volkswagen's engineers produced the first car with two benches for rails and an assembly line in an incredibly crude workshop. Strong hands lifted the huge body of Santana and bore the weight of new hope in the Chinese auto industry.

Today, Anting draws a resplendent picture of the modern Shanghai Volkswagen plant, dotted with blue and white workshops.

When the reporter from the German Mirror Weekly visited again, he described it as "surprising" and "incredible".

After former German Chancellor Gerhard Schroeder visited Shanghai Volkswagen in November 1999, he said: "Shanghai Volkswagen is the successful apotheosis for the Sino-German cooperation".

A car to start the industry

Looking back at the auto industry in China, there was a lot of cooperation between nearly all of the world's giants. Shanghai Volkswagen, as the first baby and joint venture enterprise raised by China and German after reforms, had no existing experience to refer to, but it provided a starting point for the Chinese auto industry to follow and SVW's success has greatly promoted the growth of the Chinese auto-manufacturing industry.

While expanding its production scale, SVW started the Santana localization endeavor to revitalize the Chinese parts supply industry. When Santana first came to Shanghai, SVW found that there were no parts plants that could support them in the country, all production lines needed to be reconstructed; thousands of car parts except tires, radios and tape decks, speakers, antennas, and logos, depended on imports, and the localization rate was only 2.7 percent.

Under the circumstances, the entire project could have been defeated by high tariffs and the cost of CKD accessories.


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