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China Stops Encouraging Foreign Investment in Auto Manufacturing

China will stop encouraging foreign investment in car manufacturing to allow for “healthy development” of a market that saw sales growth plummet to a tenth of last year’s pace.

The change ends seven years of foreign-investor benefits including reduced tariffs on imported plant equipment, said Jenny Gu, a senior market analyst at LMC Automotive in Shanghai. Foreign investment in more fuel-efficient vehicles will still be encouraged, the National Development and Reform Commission and the Ministry of Commerce said in a statement.

“It might be more difficult for carmakers to get approval for new plants in the future unless they have an investment in new-energy vehicles,” Gu said.

SAIC Motor Corp., the nation’s largest listed automaker, rose 4.1 percent to 13.88 yuan in Shanghai trading today, it’s biggest gain in almost two weeks.

The country needs to focus on nurturing strategic new industries to make its manufacturing more sophisticated and be more competitive globally, the National Development and Reform Commission in the statement.

Vehicle sales in China rose 2.6 percent during the first 11 months of this year, with passenger car sales increasing 5.3 percent to 13.1 million units, according to the China Association of Automobile Manufacturers. China’s vehicle sales gained by a record 32 percent in 2010.

Slowing Deliveries

The nation’s automobile manufacturers association estimated that 2011 deliveries may grow by the least in 13 years as a rollback in policies aimed at encouraging buyers curtailed purchases.

LMC estimates that China’s light vehicle capacity, which doesn’t include production of minivans and trucks, may grow more than 40 percent to 27 million units annually between 2010 and 2012. The automobile manufacturers association’s category for passenger cars includes minivans.

The decision to continue encouraging investment in new- energy vehicles also comes as the world’s largest polluter pushes for more alternative-energy vehicles on its roads.

Wan Gang, China’s Science and Technology Minister, said this week that China needs to improve its research and development of electric cars, and should establish standards for car batteries as soon as possible, the Science and Technology Daily reported on Dec. 26. The government has set a goal of 1 million electric-powered vehicles on the road by 2015, according to the Ministry of Science.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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