China softening its auto trade policy

By Alysha Webb, Automotive News

Shanghai, China-Chinese policymakers appear to have heeded calls from the country's automakers to make the new national automotive policy less protectionist.

After releasing a draft last year that contained several nationalistic provisions, planners last week sent a softer, gentler version to the governing State Council, China's Cabinet, for approval.

The new version drops a proposed requirement that 50 percent of the market be held by local automakers that own their own intellectual property rights.

But with no guidance as to whether joint-venture manufacturers were considered local, foreign automakers worried that they might be required to transfer intellectual property rights to their Chinese partners.

In the new version, hard and fast numbers have been replaced by softer language calling for “environmentally harmonious” development of the automotive sector; fostering a “healthy consumer market;” and promoting private car ownership.

“The government realised they couldn't have such specific targets,” says a researcher at a government think tank involved in drafting the policy. “But China has to do something to make the industry more competitive now that it has entered the WTO (World Trade Organization).”

It is not clear when the new policy will be issued. Originally, Beijing indicated the policy would be out at the end of 2003, but ministry infighting apparently delayed the release.

Also missing from the latest version is a goal that 40 percent or more of sales for component makers come from exports. Parts makers merely are urged to satisfy the needs of the domestic market and “industriously enter” the international market.

But some protectionist provisions remain in the latest version of the policy.

The new draft still limits foreign automakers to 50 percent ownership of ventures they set up, and decrees that new automaking or engine ventures be capitalized at a minimum of $181 million at current exchange rates.

Import of knockdown kits is still discouraged, and the policy emphasizes that kits that have the “characteristic of a full car” will be taxed at the same rate as built-up vehicle imports.

The tariff on built-up cars dropped this year to an average of 37 percent, from 42 percent.

This latest version continues to stress reducing China's dependence on imported oil by developing such environmentally friendly technologies as fuel cell engines. This doubtless will sit well with General Motors, which has demonstrated a hydrogen-powered car in China and hopes to work with the government to develop the technology.