China moves to limit government purchases of foreign cars

Zheyang Soohoo/REUTERS - An Audi car drives past Tiananmen Square as a police officer stands guard on a street in central Beijing. Recently proposed regulations in China would require government agencies to purchase only Chinese car brands.

BEIJING — The ubiquitous official black Audi and Mercedes-Benz cars racing through the streets of Beijing and almost every other city in China could soon become far fewer, under recently proposed regulations that would require government agencies to buy only Chinese brands.

On one level, the new rules would seem like a rare example of China’s authoritarian Communist leaders bowing to public opinion.

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Popular microblogging sites, akin to Twitter, have been filled with sharp criticism of the perks enjoyed by public servants, such as riding in chauffeur-driven cars while most residents cram onto packed subways or slog through traffic jams on overcrowded buses. The criticism reached a peak during this month’s annual session of China’s national legislature, which saw parts of Beijing choked with official cars — almost all of them high-end foreign brands.

But the government’s push to have its legion of employees riding in Chinese-brand cars — chosen from an approved list of 412 models issued by the Ministry of Industry and Information Technology — also seems to have a mercantilist aim: to protect China’s struggling domestic auto industry.

Since 2009, China’s appetite for new cars has exploded, making this country the world’s largest manufacturer, and largest market, for automobiles. Most of that growth has been to the benefit of foreign carmakers — led by Volkswagen, General Motors, Toyota Motor and Audi — which have built local manufacturing plants. And the benefit has come despite government rules that require foreign firms to enter into 50-50 joint-venture arrangements with Chinese automakers.

More than 70 percent of passenger cars bought in China are foreign brands, according to industry analysts. In the past year, local Chinese carmakers have seen their market share drop an additional two to three percentage points — enough, analysts said, to set off alarm bells among Chinese leaders concerned about seeing a domestic industry swamped on its home turf, despite huge advantages, by foreign competition.

“The domestic car industry is under pressure — they are losing market share,” said Klaus Paur, a Shanghai-based analyst on the Chinese auto market for the French research firm Ipsos. “The Chinese manufacturers are just not able to keep up with what foreign manufacturers are doing.”

Propping up industry

Economists and others say the response is worrisome, since it sends a strong signal that the central government is ready to do whatever it takes — even skirting the spirit of global open-trade rules — to help prop up a Chinese industry that needs protecting.

“The whole automotive industry in China is very much supported by the government,” Paur said. A rule that requires government agencies to buy Chinese brands “is pointing in the direction that they want even more to support domestic industry and make it a little more difficult for foreign car manufacturers to be successful.”

As China’s car market was expanding in the past few years, the problem for local carmakers was not so acute. Since the market was growing so fast, all the automakers, foreign and domestic, were reaping the benefits.

But China’s economy has entered a slowdown, with growth projections for this year trimmed to 7.5 percent after years of double-digit gains in gross domestic product. The car market, while robust, is showing signs of cooling down, and local manufacturers are feeling the pinch the most.

Part of the reason, auto industry analysts said, is that Chinese carmakers have not been able to successfully build their brands, which include Geely, Chery, Great Wall and Red Flag. As China’s increasingly affluent consumers have become more brand-savvy, they have tended to perceive foreign cars as higher-quality, longer-lasting and having better safety standards. In addition, there is the status element: Driving a foreign car — even one made in China — conveys more of an image of wealth, power or good taste.

Domestic carmakers also have been hurt as GM, Ford and other foreign manufacturers have increasingly moved to less-expensive brands introduced primarily for the Chinese market, further crowding out the space once dominated by local producers.

Loophole for ‘officials’

With its vast bureaucracy, China’s government-agency vehicle purchases accounted for about $13 billion in 2010, or about 5 percent of the total number of passenger vehicles bought in China, according to research agency and expert estimates, so the overall industry impact of the new restrictions is likely to be limited.

The proposed rule also comes with one glaring loophole: It applies to government agencies but not to those classified as senior “officials,” meaning that high-ranking Communist Party members and delegates to the national legislature would still be able to cruise around cities in their Audis and other foreign cars. The restrictions also would affect only cars that cost less than about $29,000, further limiting the impact on top officials, who are allotted twice that much or more.

The new-car purchase rules are expected to be formally issued soon, and public views on them appear mixed, based on opinions expressed on microblogging sites during an open comment period. Many supported the move to buy only Chinese brands but questioned why top officials were exempt. Some asked why government workers should be issued cars at all.

“Why doesn’t it include the officials’ use of cars?” asked one commenter, who used the name Weiyangwolong. “Is it because they aren’t confident in the quality of domestic cars, or because they look down on domestic-made cars and think local cars are beneath their status?” Another said, “Even though we are so poor, we don't let our government to be poor. Even if we have to suffer, we don't let our officials suffer too.”

Researcher Liu Liu in Beijing contributed to this report.

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