Chinese automobile industry recently decided to ‘withdraw its support’ from foreign investment in auto sector and formulate tougher rules for international car manufacturers operating in the country. According to the National Development and Reform Commission (NDRC), the step taken by the Chinese government will curb the leverages given to international brands.
The reason for taking such a drastic decision was the drop in sales of the auto market. Beijing is now trying to revive the economy by concentrating on domestic companies and aims to make it easier for foreigners to enter other industries like environmental technology.
John Zeng, Director of Forecasting, LMC (Livingston Market Consultants) Automotive, says, “The government is signalling that it is worried about overcapacity (in the auto industry) and that it will reserve any new capacity to local brands or new energy vehicles. In previous years, a joint venture in China enjoyed tariff reductions on the import of new equipment, but now with the new policy there will be no such incentives, so investment costs will increase. New foreign brands could be restricted.”
China’s new policy on foreign investment in auto industry will come into effect from 30th January, 2012. Major international brands like Honda, General Motors and Volkswagen are most likely to get affected with this move. However, the government has already affirmed that ‘any new capacity’ would specifically be for domestic brands, according to Zeng.
Jia Xinguang, Managing Director, China Automobile Dealers Association, also said that the government will most probably halt new plans and projects of foreign car makers. He added that the government has become more cautious due to the current economic conditions.
China became the world’s largest automobile market in 2009, leaving behind United States. In 2010, the sales increased by 32 per cent recording a total sales of 18.06 million units; however, due to cut in sales incentives on small-engine cars by Beijing, the growth has slowed down.
