China to Revise Auto Industry Regulations

by Paul Denlinger

Posted Aug. 18, 2003

In a bid to rationalize its auto industry, China will soon announce new regulations aimed at pruning the large number of independent auto makers, and encourage domestic production by foreign auto makers.

China now has more than 120 auto factories, of which more than three-quarters make fewer than 10,000 vehicles a year. Most of these plants are under-capitalized and use out-dated production methods, but are protected by their respective provincial government patrons. Beijing has tried to curb investment in these facilities, but so far, these moves have been resisted. From an economic point of view, these plants are a major source of "policy loans" from which the government has almost no chance of recovering the loans.

The new regulations will also take aim at auto importers who export nearly completely assembled cars outside China for final assembly in China. Current regulations allow this practice, and car kits are taxed at favorable rates. The new regulations would count these kits as imported products, and would be taxed at higher rates. The aim is to encourage foreign investors to invest more capital in Chinese production facilities.

Although the new regulations have not yet been officially announced, details of the new policy have been discussed in the Shanghai Youth Daily newspaper.

China has recently seen tremendous growth in consumer demand for automobiles on the domestic market.

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