ABSTRACT
This chapter examines the 'irrational' structure of the Chinese automobile industry. It explores the hypothetical possibility by taking a close look at the marginal enterprises in Chinese automobile industry. The chapter discusses the existence of scale economy in the industry by regression analysis. Chen and Sheng (1990) put the blame on the government, which 'did not consider much about scale economy'. Some western scholars who studied Chinese industrial groups in the 1990s were sympathetic to the Chinese government's ambition to reorganize the dispersed state-owned enterprises into large competitive firms. The government supports automobile manufacturers such as Beijing Automobile Group, Guangzhou Automobile Group, Chery Automobile, and China National Heavy Duty Truck Group (CNHTC) to merge other firms and reorganize the local industry. The vertically disintegrated structure of the Chinese automobile industry, where new entrants can outsource inputs such as engines and design, lowers the entry barriers of the industry.
