China Plans To Set New Policies For Auto Industry

Autoparts Report, Dec 4, 2002

China will launch a package of long-awaited new policies for the automotive industry and market at the end of this year or the beginning of next year, a senior government official said. The new policies will include a program to accelerate the industry's development and others concerning vehicle consumption, fund management and financing, Zhang Guobao, vice-minister of the State Development Planning Commission, said at an international automobile forum organized by the Chinese Academy of Social Sciences (CASS).

The plan comes as China's auto market has surged during the year since the nation joined the World Trade Organization (WTO). Zhang forecast that demand for vehicles would increase to six million units a year by 2005 from the expected 3.2 million units this year. China has promised to revise its existing regulations on the auto industry and to form policies on the issue according to WTO requirements.

The new policy on automobile purchases in China may turn out to have less stimulatory effects on the country's auto industry than previously expected, the State Information Center said. "People may find it a little bit disappointing that the new industry policy, likely to be implemented early next year, is less encouraging than widely-expected," the State Information Center said.

There was no specialized legislation on auto purchasing in China until the middle of last year, when the government issued a preliminary version of the policy for the country's infant, but promising, auto industry, the State Information Center said.

In the draft policy, regulators are trying to create a more favorable environment for domestic auto purchases by laying down unified standards for a wide range of issues, including a crucial tax and charge policy on auto purchases. Miscellaneous fees and taxes on auto purchases, which have long been widely criticized as redundant and unreasonable, account for nearly 10 to 15 percent of the purchase price.

"The government may be cautious in introducing more aggressive policies on auto purchases given the unexpected boom in the mainland's auto market this year," the State Information Center said.

China's automobile sales this year are expected to reach 3.2 million units, an increase of around 35 percent year-over-year, it said. In addition, domestic auto consumption may not react that drastically to more favorable policies for the time being, as the country's major cities have already loosened their control over auto purchases, it added. Zhang forecast that demand for vehicles would increase to 6 million units a year by 2005.

Shanghai is now the only major city in mainland China where license plates for privately-owned cars are issued by public auction, in a bid to curb increasing environmental and traffic pressure by controlling private car ownership. Auto sales in other major Chinese cities, such as Beijing and Shenzhen, increased markedly this year, with the total number of vehicles in use expected to exceed two million by the end of this year in Beijing.

China's State Administration of Taxation lowered the automobile consumption tax on March 1, 2002, the second time since October last year, in light of the lower car prices in the domestic market. But it is said that the government will not cancel the consumption tax on automobiles, although certain structural adjustments will likely be made to the tax rate.

The central government last year gave the green light to two Chinese privately owned car makers - the Geely Group in east China's Zhejiang Province and the Shanghai-based China Brilliance Auto - to produce and market passenger cars. China has permitted foreign carmakers to set up joint ventures with Chinese-State-owned companies for the past two decades.

Zhang also said his commission approved on November 28 regulations for the management of auto financing institutions in China. Eyeing huge potential in the business in China's many financing arms of foreign auto giants, such as the General Motors Acceptance Co. and Ford Motor Credit Co., have applied to the government to set up car-financing branches in the nation.

Auto output in 1990-2002

The following table shows China's output of motor vehicles in the 1990-2002 period.
Year
1990 -    0.51      1997 -         1.54
1992 -    1.06      1998 -         1.63
1994 -    1.35      2000 -         2.07
1996 -    1.46      J-O, 2002 -    2.63