The fourth trend is a shift toward the interior cities of China. As first-tier cities like Beijing get more and more congested and interior cities get wealthier, you’ll see the market shift toward these cities.
The fifth trend is that Chinese auto companies are getting increasingly global. Through external acquisitions, you will see them become more integrated around the world. We also want to do cross-border M&A, including in the United States. That is an important tool.
S+B: The news behind all these trends is that more and more Chinese are now able to afford cars. What are the short-term and long-term implications?
WANG: We think that today 230 million Chinese families can afford a car. Compared to the U.S., car ownership is still low. China has only 50 or 60 cars per 1,000 people, whereas the United States has 870 cars per 1,000 people. Ownership in China is one-third of the world average. But there is rapid growth. The forecast this year is for 20 million car sales [in China], and 40 million in 10 years.
Certainly in the long term, this is not sustainable, for the environment in particular. So what do we do? We have to find alternative solutions. That’s why we talk about electric vehicles. This is one of the ways to solve this problem. Meanwhile, we continue to improve the efficiency of our current, conventional vehicles — giving them smaller, better engines and better transmissions, and making them lighter. You have to push hard on both fronts. Pollution is a concern, but cars are getting cleaner and cleaner. China will soon adopt the same emissions standards as Europe, which will help reduce fuel consumption.
In the short term, inflation is a concern. Recent inflation data suggests we are at a 37-month high. The weakening dollar is also a concern, because China imports a lot of raw material. Right now in China, energy dependence from imports is about 55 percent. We are heavy consumers of steel, iron ore, and rubber. Rising prices will impact our costs and impact the consumer. Over the long term, my concern is how to make the company sustainable. Since I became CEO three years ago, we have had a sevenfold increase in profit, so I worry about how I can maintain this growth.
S+B: You are part of a government plan to reform state-owned enterprises. As the head of a state-owned enterprise, how do you see this reform working?
WANG: Government policy has made clear that public ownership is the right direction. How far to go and how fast to go must be decided case by case. In our case, we partitioned our assets into four major groups by product: commercial vehicles, called Beiqi Foton Motor Company; passenger cars, called BAIC Motor Company; BAIC components, called Beijing Hainachuan Automotive Parts Company; and finance and services, known as BAIC Penglong. We have already done an IPO for Foton. The idea is to do IPOs for the rest over time. So Foton is now a public company, and we have 40 percent ownership.
It’s important to have this modern enterprise governance structure. That’s the universal best practice. We have diversified the ownership structure so that the company can have better governance and decision making. From the government standpoint, it’s more flexible too. The government still has some shares, but it’s more liquid. A diversified ownership structure has many advantages, and is more compatible with how the rest of the world conducts business.
S+B: There’s been a lot of debate about China’s true innovation capabilities. How do you see them?
WANG: There are many kinds of innovation. We are doing several things: One is building a new technology center for innovation capability development. Then we need product innovation. We use an open approach. In other words, we don’t need to start everything from scratch. That’s what we did when we purchased Saab’s technology for [US] $200 million, and we also purchased some development know-how to help us increase our innovation capability. Some Saab engineers are now working with us to support our efforts. In technology innovation, we are focused on new-energy vehicles.