Mainland firms see playing field flattening out as tax-free zones are scrapped Chinese carmakers do not fear a loss of business when tariff barriers on car imports are cut further to 25 per cent later this year because the move will coincide with the scrapping of tariff-free import zones. At the same time, the government will also restrict car imports to just three ports. The end to the mainland's import zones and the restriction on the number of entry ports would increase the cost of imports and neutralise the impact of the lower tariffs, said Laurence Ang, executive director of Hong Kong-listed carmaker Geely Automobile. 'Historically, it is rare for regions to be affected by a flood of imports after tariffs are lowered,' Mr Ang told the South China Morning Post. 'In China, the process began in 2000 and has been gradual with no big impact on the local market. 'From the middle of this year, the government will close the existing tariff-free zones where importers could warehouse their products until they had buyers and it will also allow only three ports for automobile imports. This will mean the effective cost to importers will be higher than before.' Under its World Trade Organisation commitments, China is required to reduce tariffs on imported cars from 50 per cent to 25 per cent by the middle of this year. The first reduction, from 50 per cent to 35 per cent, took place in several steps last year. In June, the final cut to 25 per cent will take place, prompting some mainland manufacturers to worry that they will lose business amid a surge of imported cars. Yet, Mr Ang and consultant CSM worldwide director Yale Zhang are sanguine about their outlook. Mr Zhang said that, on top of the 25 per cent import tariff, importers still would need to pay a 17 per cent value-added tariff, as before. Moreover, many foreign carmakers already have co-invested in mainland ventures with local manufacturers and would be unlikely to damage their own interests with a flood of imports. Relocating their plants to joint-venture operations in the lower-cost mainland market was the best way foreign carmakers could enter China with their products, said Mr Zhang. Total capacity in China's car market already exceeds current demand. But sales volumes are on the rise for domestic carmakers. A Credit Suisse research report indicated that the major passenger vehicle makers on the mainland posted strong sales growth last month with their total turnover having increased 12 per cent year on year. Another positive development was a slight rebound in the China car price index, the report said. By contrast, sales of imported cars had dropped 11.6 per cent from January to October last year, according to a report posted by Xinhua. Credit Suisse also predicted that for locally made cars, coming off a low base last year, should help a turnaround story this year. Aggressive new model launches and the generally strong consumption trend in China should support car sales momentum, it predicted. On top of good domestic sales conditions, Mr Ang said that to improve sales and profitability, local carmakers needed to focus on export prospects. Mr Zhang agreed. Competition in the domestic market was intense, he said and carmakers needed to look for other ways to make their businesses grow. With compact cars having been targeted for preferential tariffs in Hong Kong this year, Hong Kong-listed Chinese carmakers have maintained an upside trend in the past few weeks. Denway, Brilliance China and Changan's ratings are being raised to 'outperform' by investment banks.