General Motors Faces the Harsh Reality of China’s Market

An inspector examines cars parked outside the warehouse of General Motors Company in Shanghai, on March 4, 2003. Liu Jin/AFP via Getty Images

News Analysis

General Motors faces the harsh reality of China’s consumer market as it turns from an asset to a liability. The U.S. automobile giant counts losses rather than profits, writing off its China assets.

There was a time when GM joined the scores of U.S. multinational corporations reaching out for China’s market potential, driven by the country’s large population and rising income per capita.

In the 1990s, the largest U.S. automobile manufacturer established its first venture in China, the Shanghai General Motors Co., or Shanghai GM, to manufacture and sell its Buick, Cadillac, Chevrolet, and Opel brands across China. Over the next two decades, this venture was followed by a dozen more partnerships, offering a broad line of vehicles and brands sold under the Baojun, Buick, Cadillac, Chevrolet, Jiefang, Opel, and Wuling brands.

On the surface, GM’s China venture began to pay off. For instance, Cadillac’s sales rose to 53,086 in 2015 from 6,185 vehicles in 2012, with overall GM vehicle sales reaching 541,000 in the third quarter of 2023. On closer examination, they drag the company’s bottom line and capital, resulting in losses and write-offs.

GM reduced the value of its equity stake in the ventures by $2.6 billion, to $2.9 billion, and recorded $2.7 billion in restructuring charges. The company disclosed these charges in a filing with the Securities and Exchange Commission on Dec. 4.

GM isn’t the only foreign company that has suffered losses in China. In April 2023, Mitsubishi Motors Corp. announced that it expected to record a one-time loss of 10.5 billion yuan ($78.31 million) for the fiscal year that ended on March 31 because of declining sales in China.

Meanwhile, several foreign companies—from Apple to Starbucks to Tesla—have reported slowing or declining sales in China.

Foreign companies sometimes scale back their presence in China by diversifying their supply chains. Samsung and Apple, for instance, have shifted production to Vietnam and India, while Adidas and Volvo have been reassessing their presence in China.

In other cases, foreign companies withdraw altogether from the Chinese market—a trend that has accelerated in recent years, according to Nomura Institute of Capital Markets Research.

Several explanations are behind this trend. One is the slowdown of Chinese economic growth—from low double digits less than two decades ago to low single digits in recent years.

Another factor is asset deflation—declines in equity and property values—which has taken its toll on Chinese household wealth, paralleling Japan’s experience in the 1990s.

However, the most crucial factor is the harsh reality of China’s economy. Despite opening to the world five decades ago, China isn’t a typical emerging market economy. Instead, it is a mature, quasi-communist economy. The Chinese Communist Party directly or indirectly controls every major sector of the economy, deciding who will be in what business and for how long.

This heavy-handed government intervention in the economy, which favors domestic companies wherein the CCP has a direct or indirect presence, magnifies the risks and uncertainties for foreign companies doing business in China.

Meanwhile, China has failed to transition from a producer- and export-oriented economy. China is a nation of thrifty savers (owing to a weak social safety net) rather than prosperous consumers. The Chinese people have yet to freely seek foreign products and services to elevate their lifestyles.

Still, the Chinese market is complex.

“In China,” wrote Edward Tse, author of “The China Strategy,” “instead of products arriving in a predetermined order, from essentials to luxuries, from low end to high, everything has arrived almost simultaneously ... thus the masses of Chinese people tend to be difficult for marketers to reach: fickle, willing to change brands rapidly, often shopping on price alone. And yet there is a rapidly growing group of people at the high end who are brand conscious, with the ultimate goal of showing off their wealth as they acquire known brand name products.”