Automobile manufacturing is no longer encouraged due to the risk of overcapacity

With the approval of the State Council, the National Development and Reform Commission and the Ministry of Commerce recently released the newly revised Catalogue for the Guidance of Foreign Investment Industries (Revised in 2011), which will take effect on January 30, 2012. The Catalogue for the Guidance of Foreign Investment Industries (Revised in 2007), issued in 2007, has ceased to be implemented at the same time.

This revision of the “Catalogue” took into account the requirements for the healthy development of the domestic automobile industry, removing the entire automobile manufacturing item from the encouraged category and including it into the permitted category, and adding items such as key spare parts for new energy vehicles in the encouraged category.

After the new “Catalogue” was published, some foreign media said that China’s policy of tightening foreign investment in automobile industry will reduce support for foreign investment in the auto industry. In fact, this is a misreading.

The person in charge of the relevant department of the National Development and Reform Commission pointed out that the removal of automobile manufacturing items from the encouragement of foreign capital use is due to the fact that China's vehicle manufacturing capacity has already been somewhat oversupply and there are too many vehicle companies. This is a normal adjustment based on the development of China's auto industry. There is no tightening issue and it will not affect the existing joint venture auto companies continuing to operate in China.

Excessive overcapacity risk of Chinese vehicle companies There are currently more than 130 domestic auto vehicle companies, making it the largest among the world's automobile powers. The top ten domestic automobile groups accounted for about 83% of production and sales, and the remaining companies only accounted for 17% of the market. In the past two years, the merger and reorganization of the automobile industry only Chang'an reorganized Changhe Hafei, Guangzhou Automobile's restructuring of Changfeng and Gonow, and the overall pace was still too slow. The situation of China's large and non-strong, fragmented auto industry has not been resolved. Therefore, the strict control of newly-added vehicle companies has become a consensus, and foreign investment is no exception.

Due to the good situation in the domestic auto market in the past two years, auto manufacturers have formulated ambitious plans to expand production capacity, and some new construction projects are expected to start production in the next two years. As the auto market slows down, some manufacturers' new production capacity may go down. From the standpoint of containing excess vehicle capacity, the approval of vehicle projects has been tightening for the past two years. However, this does not mean tightening the policy of foreign investment in the auto industry. It merely guides foreign investment in projects with more market prospects and higher returns on investment.

The foreign investment policy of the auto industry has not changed the use of foreign capital is the core of China’s open-door policy. Since the 1980s, the absorption of foreign direct investment in the Chinese automobile sector has yielded fruitful results. Major multinational automobile giants have set up joint venture vehicle companies in China and attracted a large number of auto parts giants to invest in factories in China. These joint ventures brought technology, capital, and models to promote the rapid development of the Chinese automotive industry. At present, 70% of domestic cars are produced by joint ventures. The most profitable medium and high-end cars are basically the joint ventures. Foreign-invested auto companies have become an important part of the Chinese auto industry.

Through production and sales in China, China has become the world's largest market for multinational auto companies such as Volkswagen and General Motors.

With China becoming the world’s largest auto producer and new car market for three consecutive years. China's models and brands are also ranked first in the world. In the post-joint era of Chinese autos, China continues to welcome foreign investment into the Chinese automotive sector, but it cannot follow the previous model. In the post-automotive joint venture era, the Chinese government has encouraged multinational car companies to establish automotive R&D centers in China and invest in key automotive technologies and components.

The responsible person of the National Development and Reform Commission, which directs foreign investment in key technologies and components for automobiles, points out that the new Catalogue will further open up to the outside world. Encouraged category entries have been added, and restrictions and prohibited category entries have been reduced. At the same time, the cancellation of the restrictions on the ratio of foreign capital in some areas, the ratio of the number of items required than the original directory is reduced by 11. The second is to promote the upgrading of the manufacturing industry. We will use high-end manufacturing as a key area for encouraging foreign investment, promote foreign investment in the use of new technologies, new processes, new materials, new equipment, and transform and upgrade traditional industries. The third is to cultivate strategic emerging industries. Foreign investors are encouraged to invest in strategic emerging industries such as energy conservation and environmental protection, a new generation of information technology, biology, high-end equipment manufacturing, new energy, new materials, and new energy vehicles. The fourth is to promote the development of the service industry. Actively guide foreign investment in service industries and promote industrial restructuring. The fifth is to promote coordinated regional development.

The new Catalogue encourages the 19th category of “Transportation Equipment Manufacturing Industry” to list in detail the projects that encourage foreign investment, including: automobile engine manufacturing and engine R&D institution construction, automobile key component manufacturing and key technology R&D, and automotive Electronic device manufacturing and R&D, manufacturing of key components for new energy vehicles.

The above projects include a series of Chinese automobile industry shortage technologies such as gasoline engines with a power rating of 70 or higher and dual clutch transmissions. It can thus be seen that China has not tightened foreign investment in the automotive industry, but has shifted its investment focus from vehicle manufacturing to key automotive technologies and components. Relevant news giants have set up factories to build plants in western auto manufacturing "Sat Rocket" Swedish auto maker Saab Automobile applied for reorganization Mexico will re-emerge as a light vehicle manufacturing center German automaker or unaffected by economic turmoil in Europe Automobile manufacturers alliance AAM appoints Mitch as new CEO Porsche ranks among the top ten electric car manufacturers in the world. GM surpasses Toyota to become the world's largest car manufacturer. Japanese automaker Mazda and Ford said "bye" Volvo car manufacturers will recall 7558 S60 in the United States. Pang Qinghua talks about car manufacturing: it will kick in, But not deep.