The State Development and Reform Commission (SDRC) on Tuesday launched a long-awaited new policy for China’s fast-growing auto industry. The release comes just a year after the commission, one of the major regulators for the auto industry, issued a draft policy seeking public opinion.
The policy, replacing the one issued in 1994 by the State Council, will both loosen and tighten restrictions on foreign investors in the auto industry.
Foreign investors will be allowed to hold stakes of more than 50 percent in automobile and motorcycle joint ventures (JVs) with Chinese partners “if their JVs are built in China’s export processing zones and target overseas markets,”‘ the new policy states.
Japan’s Honda Motors has a 65 percent share in a JV with China’s Dongfeng Motor Corp. and the Guangzhou Automobile Group. All cars to be produced by the JV--located in the export-processing zone in Guangzhou, Guangdong Province--will be exported.
The new policy will permit foreign investors to create more than two JV plants in China to produce the same categories of vehicles, if they join with their existing Chinese partners to merge with other companies in China.
General Motors, the world’s Number 1 automaker, has built four JVs in China through mergers with local companies jointly with the Shanghai Automotive Industry Corp. (SAIC), one of China’s top three automakers.
Big Chinese automakers will be encouraged to team up with their foreign partners to merge with both domestic and foreign vehicle producers. The purpose of this policy is to “expand business boundaries in line with the auto industry’s globalization.”
In late 2002, SAIC joined GM and Japan’s Suzuki to take over South Korea’s Daewoo Motors. It was the first overseas auto merger involving a Chinese vehicle maker.
The policy anticipates some of China’s internationally competitive automakers joining the ranks of the world’s top 500 multinationals by 2010.
SAIC, which also runs a JV with Germany’s Volkswagen, is attempting to become one of those top 500.
“These regulations are in accordance with the auto industry’s development during the post-WTO entry period. They will speed up the restructuring of a fragmented sector,” said Jia Xinguang, an analyst with the China National Automotive Industry Consulting and Development Corp.
There are now some 120 vehicle plants in China.
If a foreign automaker controls a majority stake in another foreign firm, they will be treated as one entity when it comes to requirements concerning the number of Sino-foreign JVs in China, the new policy states. And one of the Chinese shareholders must have a stake larger than the total of all foreign investors if a Chinese listed automobile, motorcycle or other special-purpose vehicle producer sells its corporate shares.
“These two requirements are intended to protect Chinese automakers through measures that do not violate the nation’s commitments to the WTO,” Jia said.
Foreign automakers appear cautious about commenting.
The new policy will enhance barriers on domestic non-auto investors in the industry. Automakers in China that “could not maintain normal operations” are forbidden to transfer their production permits to non-auto and motorcycle enterprises and individuals. The state will encourage these automakers to regroup assets with other vehicle producers.
If an automaker goes bankrupt, its production permit will be revoked.
Total investment in any new auto project must be no less than 2 billion yuan (US$241.0 million). Also, such a project must include a product research and development organization with an investment of no less than 500 million yuan (US$60.4 million).
“The government hopes to use these regulations to cool overheated investment and overcapacity in the auto industry,”‘ said Yale Zhang, a Shanghai-based manager of CSM Worldwide, the US auto industry consulting firm. “Plans to enter the industry of many non-auto enterprises in China, especially privately owned firms, will be derailed by these regulations.”
The auto industry is widely seen as one of the nation’s overheated sectors, owing to massive investment from foreign automakers and domestic state and privately owned enterprises.
Total investment in new auto-making capacity will amount to 216.6 billion yuan (US$25.5 billion) by 2007 in China, according to the SDRC, and total auto manufacturing capacity will be almost 15 million units annually.
Sales of domestically made vehicles grew by 34 percent to 4.4 million units last year.
The new policy also aims to foster a nationally united and open auto market mainly depending on private consumption. Local governments will be forbidden to take discriminatory action against vehicles produced in other regions. The state will operate a national unified vehicle registration and inspection system, and local governments will not be allowed to run parallel systems.
The Shanghai municipal government still imposes much higher charges on private car buyers than other regions in the country by auctioning registration plates in an effort to control car sales and prevent traffic jams in the already-crowded city. Average charges for a license plate in Shanghai stood at more than 34,000 yuan (US$4,100) last month.
A senior official from the Ministry of Commerce claimed last week that Shanghai’s action “violates related clauses of the law of road transportation security.” But the municipal government indicated that is has no intention of mending its ways any time soon.
(China Daily June 2, 2004)
