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New Policy on Auto Sector 'Ready in 3 Months'

A much-delayed new policy for China's fast-growing auto industry is expected within the next three months, according to a senior government official.

"The new auto policy will surely be launched during the first half of this year," said Zhang Guobao, vice-minister of the State Development and Reform Commission (SDRC).

Zhang's confirmation refuted recent rumors about top industry decision-makers failing to agree on many issues.

The SDRC, the main watchdog for China's auto industry, brought forth a draft of the new policy to solicit public opinion during the first half of last year.

However, the new policy, slated to replace the 1994 legislation, is still trapped in bureaucratic red tape.

Industry sources say decision makers are revising important sections of the draft to pave the way for a new policy.

The portion of the draft relating to vehicles made by domestic producers with own intellectual property on designs and production should account for more than 50 percent of total auto sales in China will be cancelled, according to sources.

"It is meaningless for the government to jell such a target under the market-driven economy," said Jia Xinguang, chief analyst with the China National Automotive Industry Consulting and Development Corp.

"The target is very ambiguous. It has already been fulfilled if it refers to all types of vehicles made in China, including those used in the agricultural sector," Jia said.

"If it only refers to passenger cars, it is impossible to achieve the target by 2010," he added.

Foreign brands now account for 90 percent of total passenger car sales in China.

Almost all of the world's major automakers, such as Volkswagen, General Motors, Ford, Toyota, Honda, PSA Peugeot Citroen, DaimlerChrysler, Nissan and BMW, have built car manufacturing plants in China, which has the potential of becoming the world's biggest auto market.

The government will also amend the new policy to allow foreign automakers to market their vehicles made in and exported to China in the same channels, sources said.

Foreign automakers loudly complained last year about the policy draft's stipulation that they would have to separate vehicle sales channels.

The stipulation attempted to increase foreign automakers' costs in China and protect local manufacturers as overseas-made vehicles would flood in thanks to the nation's tariff cuts on imports and the expected removal of import quotas.

China will remove vehicle import quotas next year and slash its tariffs to 25 percent in 2006 from about 34-37 percent at present according to its commitments to the WTO.

"But the stipulation violates market rules and also cannot shelter domestic manufacturers in real terms because their fundamental weakness is a lack of strong development capabilities and brands," Jia said.

Most Chinese automakers, including the nation's top three - First Automotive Works Corp, Dongfeng Motor Corp and Shanghai Automotive Industry Corp - are assembling foreign models because of this weakness.

However, the requirements regarding the equity structure of Sino-foreign car joint ventures - the most sensitive issue in the industry - will remain unchanged.

The Chinese side must control a stake of at least 50 percent in joint ventures with foreign partners.

Jia called on the government to take a step back from regulating the auto industry too much, with rules such as what new model manufacturers should introduce and how much they should invest.

"What the government should do is create equal conditions for players in all forms of ownership in the auto industry, to make unified rules about vehicle safety and emissions, and to protect consumers' interests," he said.

Sales of new vehicles made in China shot up by 34 percent year-on-year to 4.39 million units last year, including almost 2 million passenger cars.

(China Daily March 31, 2004)

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