Wed, Jun 02, 2004 - Page 11 News List

China issues new plan for automakers


China yesterday issued a long-awaited blueprint for the development of its auto industry that requires any new auto manufacturing project to have a minimum investment of 1.5 billion yuan (US$175 million).

The new policy comes as auto manufacturing has been singled out as one of the industries that are too red-hot for China's good, according to observers.

"It should have the effect of preventing too much rampant overinvestment in the sector," said Thomas Stanley, director of transaction services at accounting firm KPMG.

China is home to the world's fastest-growing auto market, but there have been concerns that supply could soon run ahead of demand as more companies jump into the market.

It has taken several years to finalize the policy, which is aimed at consolidating an industry that has more than 100 manufacturers around a few big players. Smaller, less efficient companies would be squeezed out by the new regulations.

The rules would make it difficult for new and untried industrial entrants, like home appliance makers, to enter the already crowded sector, KPMG's Stanley said.

GD Midea Group, the parent company of home appliance producer GD Midea Holding Co, said previously it wanted to invest up to two billion yuan to build trucks, buses and maybe cars in Yunnan Province.

In the document issued by the National Development and Reform Commission, the country's top economic planning body, some of the concerns of foreign manufacturers were addressed, but a number of their demands have been rejected.

Most of the world's top automakers, including General Motors Corp, Volkswagen AG, Nissan Motor and Toyota Motor, have been ramping up production in China through an array of joint ventures.

They had raised concerns that the government's auto policy drafted last year would restrict their freedom to operate in China, both in terms of sales and manufacturing, and protested that their costs would increase sharply.

Foreign manufacturers had lobbied the government to allow them to hold stakes of more than half in joint ventures with local partners, giving them more control over management and production.

However, the new policy keeps the limit at 50 percent, which is hardly surprising given China's wish to maintain control over what it considers a pillar industry, observers said.

"I don't think anyone was expecting to see a change," Stanley of KPMG said. "They want to make sure that the local industry continues to have a stake in the sector."

On the other hand, previous regulations requiring foreign joint ventures to have a minimum of 40 percent local content have been abolished, a move sure to please foreign investors.

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