Less than 70 years since producing its first vehicle, China now leads the world in vehicle production and exports and is a dominant force in EV and battery production. We look at the evolution of this auto industry into what is now a global powerhouse.
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The evolution of the Chinese auto industry reflects the country’s overall economic growth, as well as its ambitious moves toward technological innovation. Humble beginnings, characterised by the licensed production of mainly foreign-designed commercial vehicles, were followed by a period of joint ventures (JVs) with established US, European and Japanese manufacturers. This soon led to the emergence of independent, homegrown brands, an early shift to electrified vehicles, and the global expansion of Chinese auto manufacturers.
Early years
Initial ventures into coachbuilding in the early 1900s were followed by plans for local manufacturing, which reached prototype stage before being disrupted by regional conflicts and World War 2. Following the founding of the People’s Republic of China in 1949, government’s focus was primarily on developing manufacturing capabilities and improving infrastructure. With limited technical capability in auto manufacturing and virtually no market for privately owned passenger cars, early efforts were focused on producing basic, foreign-designed trucks for government and military use. Appropriately, First Automobile Works (FAW) produced the first domestically manufactured vehicle, a four-ton truck, in 1956. Known as the Jiefang CA-10, it was based on the Soviet ZIS-150 and produced under license.
By 1958, FAW produced China’s first passenger car, the Dongfeng CA71, a medium-sized sedan with its body loosely based on a Simca Vedette while its chassis and 1.9-litre engine were based on Mercedes-Benz designs. During this period, several assembly factories were established, many of which evolved into the vehicle manufacturers we know today; including Beijing Automotive Investment Corporation (BAIC and Foton) and Shanghai Automotive Investment Corporation (SAIC – MG and LDV).
Mandatory Joint Ventures
A major turning point for China’s automotive sector came in the 1980s when political and economic reforms opened up the economy. The resulting expansion of personal wealth increased the demand for private vehicle ownership. With minimal local car production, imports of passenger vehicles had grown significantly, initially from the Soviet Union and then from Japan, with China quickly becoming its second-largest export market. These imports soon began to contribute to a significant trade deficit, and the government responded with temporary restrictions on imports while formulating plans to further develop local car manufacturing.
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Acknowledging that the domestic industry lacked the necessary technology and expertise to compete with established global-scale manufacturers, China began to allow foreign manufacturers to establish operations in China. The proviso was that they formed joint ventures (JVs) with local automakers and that their shareholding was limited to less than 50%. In 1984, China’s first major JV agreements were signed, leading to the formation of Shanghai Volkswagen to produce the VW Santana (known as the Passat in SA) and with American Motors Corporation (later Chrysler) to build Jeep models in Beijing. This was followed by similar partnerships with other global players like General Motors, Toyota, Honda, and Peugeot. The JVs also allowed the foreign partners to better understand Chinese consumer preferences, and in time, they began producing models specifically for the domestic market.
In addition to quickly increasing domestic production capacity, these JVs were a crucial step in developing China’s automotive industry, facilitating the transfer of advanced manufacturing techniques, automotive technologies and design expertise. They also helped develop the automotive supply chain, enabling local content levels as high as 90% on some models, which would prove key to supporting the future growth of independent domestic automakers. From 2018, the JV requirement was phased out, with some foreign manufacturers increasing their shareholding or taking full ownership of their operations.
Emergence of independent brands
By the early 2000s, independent automakers such as BYD, Chery, Geely and Great Wall Motors had been established, initially focusing on assembly and local production but still largely reliant on foreign designs and technology. Continued growth of the Chinese economy resulted in an increasing demand for cars, with buyers also demanding more variety and improved vehicle quality. The number of independent Chinese automakers expanded, as did their expertise in design and engineering, and many now began to develop their own designs specifically tailored to the needs and tastes of Chinese consumers. By 2010, with domestic market sales of 13.6 million units, China surpassed the US to become the biggest market in the world. Less than 10% of this volume was imported, while 31% was produced by local, independent brands.
Safety & emission standards
During the early years of the industry, when local manufacturing was limited to building basic, foreign designs under licence, there were no domestic safety standards. By the early 90s however, due to their origins in more developed markets, the JV products offered improved safety levels and features. The first national safety standards appeared in 1992 and were very basic, covering items like lights, brakes and mirrors, but did not include any crash protection or safety ratings. These were progressively incorporated during the 2000s as ECE, UN and Global NCAP standards were gradually adopted. A China NCAP (C-NCAP) was also introduced to provide consumers with comparative crash performance information and encourage the prioritisation of crash safety. The national standard for crash testing of front, side and pedestrian protection has continued to evolve in line with international practice, while C-NCAP now includes requirements for Advanced Driver Assistance Systems and has increasingly aligned its testing protocols with global standards, combined with some local market-specific adjustments.
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With China’s large cities experiencing extremely high pollution levels due to the rapid growth of the vehicle parc, basic emission standards covering CO, NOx and particulates were first introduced in the 1990s. By 2000 the China 2 standard, equivalent to the Euro 2 standard currently applied in SA, was introduced. Regulation has since followed the evolving European standards, with the current China 6b standard being based on Euro 6 but incorporating some additional, more stringent requirements.
Vehicle Electrification
In a broader push to reduce both pollution levels and the country’s reliance on imported oil, the government began supporting the research and development of New Energy Vehicles (NEVs). By 2009, it had laid out a plan to make China a world leader in EVs, which included national subsidies for both the manufacturing and purchase of EVs. Large cities like Beijing and Shanghai complemented these with their own local incentives, and new EV manufacturers like Geely, BYD and NIO saw significant growth in sales. By 2015, EV production quotas were imposed on local manufacturers to encourage investment in their production. In addition, the government invested heavily in expanding the country’s charging infrastructure, establishing the largest network of charging stations globally.
This early strategic focus, currently supported by a trade-in program and other sales incentives, has resulted in China becoming the global leader in vehicle electrification. In 2024, just under 13 million plug-in vehicles – comprising 60% BEVs and 40% PHEVs – were sold in the domestic market for a 48% market share, compared to only 6.3% in 2020. Worldwide, 13 of the 15 top-selling plug-in models in 2024 were Chinese brands, the other two models being the Tesla Model 3 and Model Y, a significant proportion of which are built in Shanghai.
This EV dominance extends beyond vehicles and includes the EV battery industry, where China is the global leader, dominating the supply chain. Currently producing 75% of the world’s EV batteries, its two largest manufacturers, CATL and BYD hold market shares of 37 and 17%, respectively. Further up the supply chain, strategic investments in extraction and processing provides China with control of more than 50% of global lithium, cobalt and graphite refining, while its component manufacturers control 70% of cathode production and 85% of anode capacity. This control and integration of the battery supply chain has been estimated to have given Chinese carmakers a 10 to 15-year head start and 20% cost advantage over Western manufacturers.
Global integration
An early step in the Chinese motor industry’s global expansion was the acquisition of MG by Nanjing Auto in 2006; itself later purchased by SAIC Motor. By focusing on SUVs and electric vehicles, it has grown the brand significantly in selected international markets, particularly the UK and Australia, and recently entered the SA market. In 2009, Geely acquired Volvo from Ford, gaining access to the Swedish firm’s safety expertise, design and engineering, while allowing it to maintain its Swedish identity and brand values. Geely also owns a controlling share in Lotus and partners with Mercedes-Benz through their jointly owned Smart brand.
In terms of relationships with foreign manufacturers, it can be said that the “wheel has come full circle” with one important difference – foreign manufacturers have been entering into JVs with Chinese manufacturers to benefit from their leadership in EV technology and cost-effective manufacturing. Improved quality, design and technology have also increased acceptance of Chinese vehicles in global markets. Combined with very competitive pricing, this has seen China become the world’s biggest vehicle exporter, while Chinese manufacturers are also establishing production facilities in key overseas markets.
The evolution of the Chinese auto industry has been a remarkable success story, from manufacturing less than 6 000 cars in 1985 to manufacturing 27.5 million in 2024. With its leadership in EVs and achievements in autonomous vehicle development, it will undoubtedly play a key role in future mobility.
Find the full feature in the June 2025 issue of CAR Magazine.
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