Smaller impact seen from car policy
A new government procurement policy that was hailed as a lifeline for the mainland's carmakers may not be what it first seemed, after a top official clarified last Friday that government leaders are not bound by the new rule.
Miao Wei, who heads the Ministry of Industry and Information Technology (MIIT), won applause from carmakers when he proposed last month that all government departments should use domestically made vehicles selected from a list prepared by the ministry.
However, on the last day of the policy's public consultation, Miao said the new procurement list would not apply to top officials' cars.
'The list will apply only to functional vehicles for government departments,' he said on Friday. 'Leaders' cars are not included because the purchase of their vehicles is controlled by the State Council.'
That means the impact of the plan in terms of both money and future development on the domestic car industry could be much less than originally thought.
The ministry's list contained 412 models from 25 carmakers. When it was unveiled on February 24, share prices of almost all major domestic brands, such as Great Wall, Geely and Shanghai Automotive, jumped on hopes the policy would lead to 600,000 more vehicles sold annually, injecting an extra 120 billion yuan (HK$147.5 billion) into the industry.
No official statistics on the size of the government car fleet were available.
John Lu, an analyst at Guosen Securities, was sceptical about the estimate and said a figure of 600,000 would include every public vehicle, from officials' passenger cars to police vehicles and fire engines. 'If we are only looking at functional vehicles, the number should only be about 400,000,' he said.
Yale Zhang, the managing director of research firm Automotive Foresight, said excluding the cars of top officials might also lessen the policy's impact in other respects.
'Top officials are role models. If they take the lead to use domestic cars, in two to three years government-funded institutes and even state-owned enterprises may also follow the trend. In five years, even individuals may consider buying a luxury domestic model because the leaders also have one,' Zhang said.
However, if top officials continued to buy favourite brands such as Audi, Toyota and Mercedes, it would be difficult to expect their subordinates not to do so, he said.
'Eventually the success of the policy will depend on its proper enforcement. If officials who are supposed to buy domestic brands really stick to the rules, then it should still help the domestic car market.'
Zhang's views echoed those of many academics and critics, although proper enforcement of a policy in every city is not always easy. In 2009, the MIIT laid down a rule which required at least half of the government fleet to come from domestic carmakers, but the media discovered last month that among the 71 vehicles bought by Ningxia's Ministry of Finance last year, only one was a domestic brand.
Although FAW-Toyota and Honda Motors China Investment said government fleets made up less than 5 per cent of their sales on the mainland, FAW-Audi said the new policy could cost up to 20 per cent of their business, which prompted protests from the European Union's Chamber of Commerce.