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VW Upset Over Chinese Firm Espionage
Today out of Frankfurt was news that VW is accusing Chinese group FAW of industrial espionage. The allegations are that FAW, a VW partner in China copied one of the engines VW is using in its vehicles. FAW is planning to sell a vehicle that competes directly with VW and Skoda in the Russian marketplace. In 2011 VW sold 2.26 million cars in China. China is VW´s largest export market.
China has laws that require foreign automakers to partner with Chinese companies where the Chinese partner has the majority stake. China does not allow foreign automakers to produce the cars in China, but they do produce parts.
Sure there are ethical issues here, but that is not what I want to discuss. What I find amazing is how the Western news agencies approach this information. For years Western companies have been shifting production to the cost effective Eastern countries. The labor costs, production costs and materials to produce the items are cheaper. We constantly hear about the lower labor and production costs, but the one that is not talked about very often is the minerals and metals that go into these products.
In 2011 the British Geological Survey put together a list of the most critical metals in the world. Many of these metals are used in the production of your car, mobile phone, computer and almost everything you come into contact with on a daily basis. Some of the metals are tungsten, tantalum and bismuth. What many people do not know is that China controls the mining and refining of over 95% of the metals. While Western countries were closing their mines in the 80´s, China subsidized the industry and in just a few years had a near monopoly on strategic metals and rare earth metals. Now China is in firm control of the raw materials while Western nations try to play catch up.
This puts the West at a severe disadvantage. China has decided that if you want access to these metals at a cheap price you have to produce your products within China. Western companies like VW have no choice but to accept the agreements in order to stay competitive.
Recently China has decided to restrict the export of these strategic metals even further and have begun to close some mines. This will make the problem for the West even more difficult. Recently the West and Japan went to the WTO (World Trade Organization) claiming unfair trade practices. China claims that it is restricting exports of the metals in order to clamp down on illegal mining.
Within a few years it is expected that China´s growing economy will require it to import great amounts of raw materials. This will have a great impact on both the supply and prices of these metals. The end result is that in order to be competitive companies will have to do business in China. If they choose not to this could have dire consequences for both shareholders and the companies themselves.