China Should Stop ‘Micromanaging’ Auto Industry, Researcher Says

China should refrain from “micromanaging” the automotive industry and allow market competition to spur innovation and weed out weaker automakers, the Chinese Academy of Social Sciences said in a report.

The government should focus instead on building a fair and competitive environment and abandon monopolistic polices aimed at creating fewer and bigger automakers, the state-backed research institute said in an annual report on industrial competitiveness released this week.

“A fair and competitive market is the most effective mechanism for promoting innovation,” according to the report by the academy, which provides research to the State Council, or cabinet. “This isn’t to say the government isn’t important. On the contrary, it is asking more of the government, to transform from being a direct participant to that of an enabler.”

The recommendations in the report stand in contrast to China’s auto policy of encouraging mergers and reorganizations in the industry in order to create two to three large domestic carmakers that can compete with companies like General Motors Co. (GM), which is spending $11 billion by 2016 to expand in China.

China’s auto market is dominated by foreign joint ventures, which accounted for 95 percent of passenger-vehicle profits in 2011, according to the academy. Chinese automakers are overly reliant on their foreign partners like GM and Toyota Motor Corp. (7203), which retain tight control over key functions such as research and development, branding, design, and components, the report said.

To help local automakers progress to making higher-end products, the government should increase its financial support for research and development, the report said. Only eight percent of automaker employees in China are in technical positions, compared with about 30 percent in developed markets, according to the report.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

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

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