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For many years (see, e.g., here), it’s been obvious to me that China’s strategy toward foreign businesses allowed to operate within its borders has been to chew them up and spit them out as soon as they’re not needed. In particular, Beijing has been happy to welcome these businesses if they possessed technologies China hadn’t yet mastered, and then to make life miserable enough to force their exit once this knowhow had been shared with Chinese partners in return for (temporary) access to Chinese customers.

(P.S. Beijing began pursuing this approach long before the advent of current dictator Xi Jinping and his emphasis on boosting China’s economic and technological self-sufficiency.) 

This stategy isn’t exactly consistent with the central tenet of the academic theory that long supported the bipartisan U.S. policy of recklessly expanding trade and investment policy with China. You know – the one holding that the whole world is better off if countries permit market forces to determine where goods and services should be generated.  But aside from the U.S. workers whose jobs were wiped out, or never created to begin with, who in Washington or Corporate America cared as long as the U.S. tech lead seemed insurmountable?

Those days of course are long gone, and now it looks like (a) the multinational auto manufacturing company Stellantis is falling victim to this Chinese strategy; and that (b) others in this industry might be next.

As reported by Reuters yesterday, Stellantis – the product of a merger between Fiat Chysler and Peugot – announced that its Jeep-making joint venture (JV) with a Chinese partner would file for bankruptcy. In July, Stallentis decided to exit this operation in China.

The latest iteration of an investment in China that began way back in 1984 as Beijing Jeep, Stellantis itself deserves much blame for this failure. As noted by Reuters, the company was far too slow in adjusting to a change in Chinese consumer tastes away from conventionally powered sport utility vehicles to electric cars and light trucks – a shift that’s been encouraged by the Chinese government (and more recently by the Biden administration for American consumers).

But echoing complaints heard more and more often from China’s foreign business community, Stellantis’ CEO Carlos Tavares has griped about growing “political” interference in working with its various Chinese partners and about the tariffs Beijing uses to protect its auto market. Further, as Tavares noted, Chinese-made vehicles don’t face such barriers in the European market, meaning they can enjoy scale economies denied outside competitors.

More important, at the root of the troubles suffered by Stellantis in China, and its other foreign-owned counterparts, has clearly been Beijing’s policy of requiring the foreign companies to form JVs with Chinese-owned entities in order to sell to the Chinese market, and to transfer their knowhow to those new partners. (Tesla has been an exception – so far.)

This extortion – which has been Chinese policy for its entire economy – can’t be blamed/credited for China’s success in electrification. But it can absolutely be blamed for enabling Chinese-owned automakers to reach the point at which they could make fully competitive vehicles and then proceed to electrification.

And it’s not like Stellantis is the only foreign auto company being bitten by submission to such blackmail. The total foreign share of the Chinese auto market (now the world’s largest) fell well below 50 percent last year.

The bottom line? As observed by an industry consultant quoted by Reuters, thanks to decades of tech blackmail, Chinese auto entities are more “confident that they have closed the gaps with or even surpassed their foreign partners” and therefore, “we have to expect more JVs to unwind in the coming years.” In other words, the entire foreign-owned auto sector may be in the process of being spit out of China by the rivals it helped create.

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