China’s government plans to stop buying cars from Volkswagen AG’s Audi and other foreign brands, threatening to lock them out of an estimated US$13-billion segment of the world’s biggest vehicle market.
All 412 models approved for purchase by state agencies this year will be limited to Chinese brands, according to a proposal disclosed by the Ministry of Industry and Information Technology last week. The preliminary list is open for public consultation until March 9, according to the ministry.
Dongfeng Automobile Co and Great Wall Motor Co were among Chinese automakers whose shares surged on speculation the government, the nation’s biggest buyer of vehicles, is stepping up efforts to protect its domestic industry as they struggle to compete against global producers such as General Motors Co and VW. China stopped offering some incentives on investments from foreign automakers this year to clamp down on overcapacity.
“It seems that the China market for cars is closing slowly but surely toward foreign investment,” Dirk Moens, secretary general of the European Union Chamber of Commerce in China, said in a telephone interview. “As an industry, you cannot expect to be warmly welcomed outside of your country if at the same time you start closing the industry in your country.”
Dongfeng Auto climbed 10 per cent in Shanghai trading, rising by the daily limit for the first time since November 2009, while Great Wall advanced 5.5 per cent to close at a record HK$14.06 in Hong Kong.
Volkswagen fell as much as 3.3 per cent to EUR134.60 at 10 am in Frankfurt trading, while BMW declined as much as 3.7 per cent to EUR67.73 and Daimler AG was down as much as 3.8 per cent to EUR45.65. In France, PSA Peugeot Citroen and Renault SA fell.
Overseas brands have accounted for about 80 per cent of the official pool, with Audi making up about one-third of government and state-linked enterprise fleets, according to Guotai Junan Securities Co. In the broader market, foreign brands account for seven of every 10 cars sold in the country, which overtook the US in 2009 to become the world’s largest vehicle market, according to data from China Association of Automobile Manufacturers.
“It’s such a drastic step I could imagine they could be a bit resistant from the local government procurement side,” Klaus Paur, Shanghai-based head of auto research at Ipsos, said in a telephone interview. “If you’re a relatively high-level person, you still want to have an Audi. The brand, the reputation, the standing is all important.”
China spent RMB80 billion on government vehicle purchases in 2010, accounting for 4.5 per cent of total passenger-vehicle sales, according to estimates at China International Capital Corp, which assumed the average car sold for RMB160,000 each.
Moens said the European Chamber will work with its members to assess the impact of the policy and may approach the government formally if the rules hurt its members excessively.