An effort to protect Chinese car makers from foreign competition is unlikely to succeed because it goes against Beijing’s WTO commitments pledging a level playing field, analysts and industry sources have told the Reuters news agency.
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China is pushing a new policy, a draft of which was seen by Reuters, that would ensure locally developed cars command half the market by 2010 and discourage the use of imported parts.
Foreign players rule in China’s booming car market, which is expected to see total sales doubling this year to surpass two million vehicles, the news agency noted, and now Beijing wants local firms, led by giants First Automotive Works and Shanghai Automotive Industry Corp, to develop their own vehicles.
“Chinese car makers are very weak compared with their foreign rivals,” Xu Xiang, an auto analyst at China Southern Securities, told Reuters, adding: “The government wants to give them a helping hand.”
The news agency noted that Volkswagen commands about a third of the market while rivals General Motors, Honda and Ford have ploughed billions of dollars into China to set up plants while most of the 120 or so local plants, on the other hand, crank out small numbers of vehicles.
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By GlobalDataReuters said the new policy states that by 2010 more than half of all car sales should be from local makers with their own intellectual property rights.
Industry sources are pondering how much of the draft, being pushed by the powerful State Development and Reform Commission, can and will become law, the report said.
A lawyer familiar with the document told Reuters the policy would mainly be used as a pointer for the local car industry.
“I’ll be very surprised if there were a law passed imposing restrictions on foreign car manufacturers in order to meet these targets, because those would contravene WTO,” the lawyer reportedly said.
Among other things, the new policies threaten to restrict the assembly of cars with mostly shipped-in components – now a common practice, Reuters said.
“The state encourages auto makers to increase their ability to produce locally made parts, and discourages the import of ‘semi-knocked down’ (SKD) and ‘completely-knocked down’ (CKD) kits for assembling cars,” the policy draft reportedly reads.
Reuters said foreign car makers in China have remained silent on the sensitive issue, preferring to wait for the final document, but analysts say the draft seemed to conflict with World Trade Organisation promises that pledge equal treatment.
“I don’t believe they will force foreign joint ventures to give up their market share,” Peter So, who watches China’s auto market for ING from Hong Kong, told Reuters, which noted that the policy also takes aim at imported components, saying that if too many crucial parts come from abroad the car will be taxed as an imported model.
Reuters said this could threaten GM’s plan to bring its premium Cadillacs to China as it plans to ship semi-finished cars from the United States to Shanghai, where final assembly would take place.
That get-rich-quick method of production has fed the car investment frenzy in China, analysts told the news agency.
“It’s much easier and quicker to build cars through knocked-down component imports,” Gu Qing of Haitong Securities reportedly said.
According to Reuters, China has pledged to slash tariffs on imported vehicles to 25% by July 2006 from 40-50% now and abolish all quotas by 2005 while taxes on imported parts, about 28% on average now, would fall to 10% by 2006.
Imported vehicles constitute a tiny portion of China’s car sales, totalling just 61,400 cars in the first half, Reuters noted, but the total value of car imports jumped 109% to $8.19 billion in the year to the end of July and analysts say the government aims to curtail that.
“The Chinese government…needs to get auto makers to transfer technology from overseas,” ING’s So told Reuters, adding that relying on imported parts and knocked-down kits was of little added value.
