Revised mainland car sector policy enters final stretch

PUBLISHED : Thursday, 02 October, 2003, 12:00am
UPDATED : Thursday, 02 October, 2003, 12:00am


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The State Council is considering the final draft of a new policy to govern the car industry which may give foreign manufacturers more scope to finance vehicle sales and lift investment ceilings, industry sources said.

Few details are known about the policy, which may be issued at the end of the month, but it is expected to grapple with many issues confronting the mainland's booming car market.

One is whether to lift the 50 per cent ceiling on ownership of joint ventures by foreign companies. Foreign carmakers say relaxing the restriction will make China more attractive for manufacturers seeking to build plants.

One exception was granted in November last year to a venture in Guangzhou, in which Honda Motor holds 65 per cent because the plant's output is purely for export.

Another issue that needs to be addressed is overcapacity in production.

The mainland's 123 car plants can produce 5.5 million vehicles annually - or about 50 per cent more than actual sales last year. All the leading manufacturers are preparing capacity expansions.

The new draft will replace the Auto Industry Sector Policy issued in 1994, and enters a landscape unrecognisable to that which exists today.

Last year, China became the fourth-biggest car producer in the world, after the United States, Japan and Germany, and is the fastest-growing market in the world.

In the first half, sales grew 32 per cent over the same period last year, with sales of passenger cars up 79 per cent.

'My understanding is that the final draft of the policy has been completed and will go before the State Council at its meeting this month,' a foreign car executive said.

'It will give the foreign makers the right to issue financing of their own sales. It will also address major issues such as whether there is over-investment, whether the government should seek to limit it and whether current restrictions on the level of foreign investment should be eased.'

Zhao Yingzeng, a car specialist at the Industrial Research Institute of the China Academy of Social Sciences, said the 1994 policy concentrated on production and supply and was weak on the market environment, the expansion of consumer demand and external factors which had stimulated consumption.

'It paid little attention to the international situation. Many of its articles are in contradiction with the commitments China made to the World Trade Organisation,' Mr Zhao said.

'In addition, it did not deal sufficiently with private investment in the car sector.'

The foreign executive said overseas firms would welcome the ability to lend money to buyers of their vehicles.

'But there is a lot of work to do. There is no national system of credit rating. Each firm will have to do its own assessment of an individual buyer.'


Honda Motor an exception as its plant output is only for export

Mainland's 123 car plants make 5.5 million units annually

China is fourth-largest carmaker behind US, Japan and Germany

Original policy was weak on market and consumer demand