Foreign backers no longer wanted for car plants

PUBLISHED : Friday, 30 December, 2011, 12:00am
UPDATED : Friday, 30 December, 2011, 12:00am

Beijing has put a brake on the rapid expansion of car manufacturing, discouraging foreign investment in assembly lines in the face of possible overcapacity.

The National Development and Reform Commission (NDRC), the top economic planning agency, said the policy was aimed at ensuring healthy development of the car sector.

For the first time, foreign investors are not welcome to build car factories in China, the world's largest car market, according to a list that outlines the industries that should invite overseas capital. The car industry was included in the commission's previous list in 2007.

'High-end manufacturing sectors will be the focus of China's efforts in drawing foreign direct investment,' the NDRC said. 'In order to keep the auto industry growing in a healthy manner, we decided to remove auto assembly from the list.'

The NDRC also said foreign investment in polysilicon plants would no longer be needed, but foreign backers for hospitals and financial leasing firms would be encouraged.

Car sales are slowing this year and industry officials predict a difficult year ahead because of economic uncertainties.

In November, car sales fell 2.42 per cent from a year ago, to 1.66 million, according to the China Association of Automobile Manufacturers.

In the first 11 months, total car sales increased a scant 2.56 per cent, to 16.82 million, compared to 32 per cent growth for all of 2010.

Consultancy J.D. Power and Associates forecast China is on track to produce 31 million vehicles in 2013 amid an investment spree by carmakers, nearly double the capacity of 17 million last year.

Business advisory firm AlixPartners estimates the Chinese car market will grow by between 12 and 15 per cent over the next five years.

Foreign car brands such as Volkswagen and General Motors dominate the Chinese market, accounting for about 70 per cent of sales.

'Companies were over-optimistic about the market's growth potential a few year ago and expansion plans were mapped out by confident investors,' said Peter Chen, a manager with Shanghai Delphi Automotive Air Conditioning Systems. 'The industry will be plagued by overcapacity and competition will become cut-throat.'

China's rapid economic growth over the past two decades has largely hinged on foreign investment that helped create millions of jobs and increase industrial output. But Beijing has begun to stress quality of foreign funding over quantity in recent years, and sought to stop an influx of funds to industrial sectors facing overcapacity.

In the first 11 months of this year, China attracted US$103.8 billion of foreign direct investment, up 13.2 per cent from a year earlier.


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