china car industry plan bars new players

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    Wednesday, October 8, 2003

    Mainland car industry plan bars new players

    MARK O'NEILL in Shanghai

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    The mainland's new car policy will bar most fresh entrants to China's booming market, which is suffering from a glut of capacity as manufacturers expand to boost sales.
    The policy will also leave in place a 50 per cent ceiling on foreign investment and aims to make the country a global production centre.

    Vice-Premier Zeng Peiyan presented the draft plan to the presidents of the mainland's top 11 manufacturers, industry experts and local government officials on September 11 in Tianjin.

    After the meeting, China Auto Association secretary-general Jiang Lei said the main drafting work on the policy had been completed and it was expected to be issued before the end of the year without major revisions.

    Industry sources said the policy would continue to cap foreign investment in car factories at 50 per cent and the government would not, "in principle", approve new investors in the sector.

    The policy also sets the goal of turning China into a major car producing country by 2010 and calls for an improvement in technology capability, design and brands.

    It also said the industry should be consolidated. China has 123 carmakers, of which 95 can produce fewer than 10,000 units a year and 70 fewer than 1,000.

    The government has for years been calling for big firms to take over small ones and for the closure of uneconomic plants, but local governments have kept them alive.

    In his speech to the Tianjin meeting, Mr Zeng said the mainland should make full use of its low production costs and good quality of labour to become a global production base.

    He also said China should remove "unreasonable limits" on car consumption so the domestic market could grow rapidly.

    "Our car market is not healthy," he said. "In some places, there is blind investment and irrational building of plants. We need to restructure the industry and improve the standard of our own research and development and consumer services."

    The policy represents a defeat for the foreign companies which have been calling for a lifting of the 50 per cent ceiling, which they say is necessary if China is to challenge the United States, Japan and Germany as a centre of global production.

    But it is a victory for the big state firms which account for most of the market, ensuring that the Chinese partners maintain control and excluding most new entrants.

    It also represents a victory for the State Development and Planning Commission, which has been lobbying hard for controls on new production capacity.

    The policy does not address the future role of the private sector.

    The high profits in the industry have attracted many new entrants, some of whom have achieved substantial levels of production, with low production costs and cut-price models.

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