Policy Change: China Puts the Brakes on Foreign Automakers
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For years, foreign automobile companies have reaped most of the profits to be had in the enormous Chinese market. But in a largely unnoticed change, Beijing is now ending their preferential treatment of carmakers from abroad to focus more on developing domestic technology and brands.
The sea change is coming slowly, as if to protect those affected from being startled out of their festive mood. At the end of last year, the Chinese government’s National Development and Reform Commission (NDRC) approved a new industrial plan that could have a devastating effect on German car manufacturers like Volkswagen, BMW and Mercedes once it takes effect in late January.
These companies have worked to make China one of their most important and successful foreign markets, while Beijing industrial planning officials looked on in frustration. In the first 11 months of last year, VW alone sold more than 2 million vehicles in there — up more than 15 percent from 2010.
But this kind of growth could now be over. To protect the “healthy development” of their domestic auto industry, the NDRC said it would remove car manufacturing from the list of industries where it encourages foreign investment. The goal of the change is clear: Beijing wants to help its own carmakers break into the market.
Domestic Manufacturers Suffering
When compared to foreign manufacturers, domestic Chinese carmakers such as BYD (“Build Your Dreams”) are suffering from the current slow-down in the market there. After Beijing cut state benefits for car purchases, the entire Chinese auto market grew by only about 3 percent in 2011 — compared to 30 percent the previous year.
It was not exactly what the communist government had in mind for its car industry when it was opened up to foreign manufacturers in the 1980s. They stipulated that foreign automakers could only produce vehicles in China if they established equal joint ventures with Chinese partners — and this still hasn’t changed. Beijing hoped to harness the foreigners to act as mentors to their own companies. At the same time, they also hoped to nurture some of China’s more than 100 carmakers into becoming internationally competitive companies.