Chinese Copy Cats

Volkswagen was one of the first Western carmakers to partner up with a native Chinese manufacturer to produce and sell VW cars in China. Now it turns out that one of their partners, FAW – First Automobile Works – is screwing them over.

VW’s first joint venture in China was with Shanghai Automotive Industry Corporation (SAIC) in 1984. Seven years later they signed another joint venture deal, this time with First Automobile Works (FAW), which is currently for 60% owned by FAW. Since 1991, the FAW – VW combination has grown like a baby and it produced and sold well over a million vehicles in China in 2011. Serious figures and a serious partnership, especially when considering the future growth the Chinese market still has to offer.

But apparently the Chinese end of the combination isn’t actually so serious about the partnership, or at least they managed to figure out the balance of power is in their favour. Recently VW discovered it was secretly getting cheated by FAW. Already in 2010 they uncovered FAW was employing industrial spies in order to copy one particular VW 4-cylinder engine block. The Chinese intended to apply this engine in a direct competitor for VW and Skoda models. Not very partner-like, but believe it or not, the Germans forgave the Chinese. Now, however, it was also unearthed that FAW also copied a VW gearbox. It seems they’re up to no good.

Why did VW bother to set up a JV to produce cars in China in the first place? Simple, because it’s mandatory. No foreign company can come to the Giant in the East to produce cars without involving a local party. The Chinese aren’t stupid, they are not giving away their economy as easily as we do in the West. This makes the current situation particularly troublesome for VW. They can’t continue their operations without FAW and that seriously limits their power to take any corrective action. And it’s not like you want to pull out of an operation that sells a million cars annually either.

Yep, VW got cheated by a bunch of smart copy cat Chinese, right under their thick German noses. I’ll make a bet they’re not the only ones.

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