New Auto-Investment Rules Limit New Capacity
* The new industry policy simplifies administrative procedures for new investment but effectively raises hurdles for them
* Industry sources expect hotter competition and industry reshuffle following the implementation of the new rules
China’s top economic planner Tuesday issued long-awaited new rules on auto- industry investment, imposing tighter restrictions on adding new manufacturing capacity.
The National Development and Reform Commission (NDRC) will make it easier for investors to set up new auto manufacturing ventures by streamlining the administrative procedure. But it also listed tougher requirements on new players in an effort to trim excess capacity.
The new rule (link in Chinese) will take effect Jan. 10, 2019, as China moves to “improve its auto industry investment management and promote industry transformation,” the NDRC said.
China’s auto industry, the biggest in the world, faces its first contraction this year after decades of robust growth, underscoring concerns about slowing economic growth and the trade war with the United States.
In November, China reported a 13.9% drop in new car sales from a year earlier, the biggest decline since 2012. The China Association of Automobile Manufacturers (CAAM) projected that China's auto market will continue to see sluggish sales in 2019, roughly matching those of 2018.
Drafting of the new rules started early this year as part of China’s overhaul of a decade-old policy framework for auto-industry development, following a central government announcement of a timetable to grant greater access to foreign investment.
Under the revised rules, new investment in the auto industry will no longer be subject to central government approval. Instead, investors can file and register new projects with local provincial authorities, according to the policy document.
But no new independent enterprises that produce only conventional combustion-engine vehicles will be approved under the new rules, reflecting China’s broader shift toward new-energy vehicles (NEVs), or those powered largely by electricity.
The new rule will resume permits for NEV factories following a suspension since June last year amid concerns of an industry glut and controversy over the qualification of some players.
In 2015, China lowered the threshold for new NEV producers in hopes of bolstering the fledgling industry. A total of 16 companies were awarded licenses for NEV manufacturing in the next two years, including some from unrelated industries.
Tougher Rules for NEV
The new rules set tougher requirements for new NEV players. Investors, both domestic and foreign, are required to have a sales record of more than 30,000 electric passenger cars, or 3,000 electric commercial vehicles, or equivalent sales of 3 billion yuan ($435 million) over the previous two years, before being granted a permit for NEV production.
An industry source said such requirements means that new startups can enter the industry only by outsourcing manufacturing to existing automakers or by acquiring an established manufacturer.
The new rules also require a minimum annual capacity of 100,000 vehicles for any new electric passenger car project and 5,000 for any new electric commercial vehicle project.
Those requirements could be daunting to newcomers. Of the two biggest local electric vehicle makers, BYD Co. sold 113,000 NEVs last year, and BAIC Motor Corp., 103,000.
The rules also order provincial governments to ensure there is no serious excess capacity in their regions before granting new NEV permits.
The new rules will “strictly control” new capacity of combustion-engine vehicles and “promote an orderly development” of NEVs, the NDRC said in an article on its website (link in Chinese).
An auto startup executive said the new industry policy simplifies administrative procedures for new investment but effectively raises hurdles for them.
Another industry source said the implementation of the new rules will fuel hotter competition among existing startups to meet the production requirements and push weaker players out of the market.
Contact reporter Han Wei (firstname.lastname@example.org)
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