China Set To Unveil New Auto Industry Policy
The Chinese government is set to unveil its new auto
industry policy, which is set to correct over-investment
in the quickly growing industry, which now has more than
100 domestic vehicle manufacturers. China's auto industry
has grown at a fast clip over the past year and a half,
but most of the companies would be unprofitable without
strong consumer demand.
The new policy would set a new minimum of 2 billion yuan
or US240 million dollars for new projects. Some measures,
such as not allowing makers to sell domestic and imports
in the same channels, would be dropped. This policy was
widely criticized by leading multinationals which have
invested in China, and criticized it for raising their
costs in China.
All leading car makers, including Volkswagen, General
Motors, Nissan and Toyota have joint ventures in China.
Beijing's auto policy over the past ten years has tried
to straddle two seemingly incompatible goals: it has tried
to force Chinese makers to cut back on investment, and
forced consolidation of current makers. On the other hand,
is afraid that Japanese, European and North American brands,
which are generally much more efficient and have larger
scale, will take over the local market, and has kept their
ceiling on control of joint ventures at less than 50%.
Since provincial governments support their own local
makers, they have continued to provide funding in spite
of threats from Beijing. Originally, Beijing said that
it wanted to cut back the number of local car makers to
five; that has not happened, and money continues to be
poured into this industry, which generates a low return
on investment.
The new policy proposes to lift the percentage on control
of a joint venture in an export processing zone to more
than 50%. This would be a first move if the venture is
aimed at the export market and is located in a processing
zone. This move smells like the first stage of a loosening
of the controls on foreign control of joint ventures;
it is easy to see this leading to further loosening of
controls directed at non-exported automobiles, which make
up the vast majority of the market.
The new policy would also allow new foreign automakers,
currently restricted to two joint ventures for the same
product portfolio, to set up joint ventures if they team
up with existing Chinese ventures to take over other companies.
This policy, if it becomes official, would amount to recognition
that Beijing needs the foreign automakers to drive the
long-overdue consolidation in the industry.
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