China limits foreign investment in auto sector

Bloomberg News

Automotive News | 2012-1-3

SHANGHAI -- China will stop encouraging foreign investment in car manufacturing to allow for "healthy development" of a market that that has seen sales growth plummet to a tenth of last year's pace.

Beijing has reshuffled a list of industrial and technology sectors where it wants to attract foreign investment, downgrading autos and putting more emphasis on emerging fields and domestic companies.

The change ends seven years of benefits for foreign investors including reduced tariffs on imported plant equipment, said Jenny Gu, a senior market analyst at LMC Automotive in Shanghai.

However, China's government will continue to encourage foreign investment in more fuel-efficient vehicles, the National Development and Reform Commission and the Ministry of Commerce said in a statement.

China, the world's largest light vehicle market, has attracted billions of dollars in plant investments and research spending from global automakers.

General Motors, Volkswagen AG, Toyota Motor Corp. and others have operated in China for years through joint ventures with local partners and automakers. They have relied increasingly on China for growth and profits as markets in North America and Europe mature.

"It might be more difficult for carmakers to get approval for new plants in the future unless they have an investment in new-energy vehicles," Gu said.

The country must focus on nurturing strategic new industries to make its manufacturing more sophisticated and be more competitive globally, the National Development and Reform Commission said in the statement.

Total vehicle sales in China rose 2.6 percent during the first 11 months of 2011, while passenger car sales increased 5.3 percent to 13.1 million units, according to the China Association of Automobile Manufacturers. By contrast, China's light-vehicle sales soared 32 percent in 2010.

Slowing deliveries
The nation's automobile manufacturers association estimated that sales in 2011 grew at the slowest rate in 13 years after the government ended vehicle sales incentives.

LMC estimates that China's passenger vehicle production capacity, which doesn't include production of minivans and trucks, may grow more than 40 percent to 27 million units annually between 2010 and 2012.

The decision to continue encouraging investment in new-energy vehicles also comes as China, the world's largest polluter, pushes for more electric vehicles and plug-ins on its roads.

Wan Gang, China's Science and Technology Minister, said this week that China needs to improve its research and development of electric cars, and should establish standards for car batteries as soon as possible, the Science and Technology Daily reported on Dec. 26.

The government has set a goal of 1 million electric-powered vehicles on the road by 2015, according to the Ministry of Science.

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