【正文】 rtners, which in turn must embrace contract manufacturing as a more profitable path to creating a globally petitive industry than launching their own brands.COMPETITION IS ABOUT TO HEAT UPWith sales of millionplus units in 2022, China buys more fourwheeled vehicles than all but six other national markets, yet its passenger car market is still in the early stages of growth. Indeed China, with only 600,000 car sales a year, has fewer than 10 passenger cars on the road per 1,000 people, pared with 250 in Taiwan and more than 500 in Germany and the United States. But demand—promoted by better roads, new sales and distribution channels, the deregulation of the auto market, and China 抯 entry into the World Trade Organization (WTO)—will increase as the country 抯 economy continues to grow (Exhibit 1).2 / 10The dominant production and sales joint ventures between global and local panies have the best position for meeting that demand. Only 15 years after Volkswagen entered the market, more than half of the passenger cars sold in China roll out of VW 抯 Changchun and Shanghai joint ventures. Other foreign joint ventures account for nearly all the rest—a further 43 percent (Exhibit 2). In the shadow of these foreign alliances, 20 domestic carmakers share just 3 percent of the market.3 / 10As global panies focus more and more on China, local manufacturers will do well to hold even that meager share。 they concede too much ground in Ramp。 Ford Motor has set up the pany 抯 first passenger car joint venture。 Karmann, in Germany, makes convertibles for both MercedesBenz and VW. These successes show that, even in quality markets, customers care more about the styling, performance, and aftersales service of strong brands than about which pany actually produced the car.Moreover, successful local automakers such as SAIC (Shanghai Automotive Industry Group Corporation) are already all but contractmanufacturing for GM and VW, for the Chinese panies are totally responsible for the quality of their output, drawing on their global partners?technology and management talent as required. GM and VW, however, have invested heavily in these plants as equity partners. Contracting out manufacture requires a further degree of separation.For contracting to succeed in China, two conditions must be met. First, the local ponentsupply industry will have to plete its current journey of consolidation and improved quality to meet the quantity requirements and specifications of global models. Second, global panies should continue transferring technology and management skills to selected Chinese plants.Most global panies realize that a strong local supplier base is needed to manufacture cars at petitive cost and quality. Local ponents escape import duties, and though they will decline under the WTO regime, the other advantages of local production remain, particularly lower freight costs and faster supply. Competition and quality in China 抯 ponentsupply market are already rising. Every one of the top ten global automotive suppliers had set up shop in China by 7 / 10the end of 2022, and many are exporting ponents to Europe and North America. Consolidation is being driven by China 抯 shift to global models, by the tendency of Chinese panies to outsource their own ponent manufacturing, and by supportive government policies.Yet global automakers could do more to help. One way would be to go on matching local capacity with international expertise, as Volkswagen has done so successfully with its jointventure partner SAIC, its international firsttier suppliers, and the Shanghai local government, which aims to make autos a core local industry. Automakers might also insist that their dealer works sell only branded, qualityassured spare parts rather than the counterfeit local products that now make up over 50 percent of all aftermarket supplies.But a strong local ponent industry is only half of the picture, for if global automakers are to rely on local manufacturing, they will have to support efforts to increase the quality and scale of Chinese assembly plants. Further capital investment, even if available, isn 抰 required