EU keen to avoid China car war

The South China Morning Post, March 6, 2012

European chamber rules out retaliation in reply to Beijing's 'discriminatory' procurement policy

Workers assemble cars at Geely Auto's factory in Ningbo, Zhejiang province. Beijing has ordered government departments to buy local cars.

The European Union Chamber of Commerce in China dismissed suggestions that it would mobilise retaliation against Beijing’s proposal to exclude foreign carmakers from a public fleet procurement programme expected to be worth 12 billion yuan (HK$14.7 billion) a year.

The chamber, which represents European carmakers in China, said yesterday that while such a move is “discriminatory” to its members - which include Volkswagen - the last thing they want is a war between countries that hurts development of the car industry.

The tensions follow the issuance of a procurement list by China’s Ministry of Industry and Information Technology on February 24, which proposed 412 domestic brands made by 25 carmakers from which officials could buy vehicles. Former favourite brands for officials such as Audi, Honda and Toyota were all excluded, ostensibly due to a new rule that requires a government fleet supplier to spend no less than 3 per cent of its revenue on research and development.

Chamber secretary-general Dirk Moens told Bloomberg earlier that “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.”

The comment was considered a threat to Chinese carmakers’ expansion in Europe.

Great Wall Motor recently opened the first Chinese car plant in Bulgaria, and Zhejiang Geely planned to set up a car sales network in Italy.

The Chinese government took carmaking off the “encouraged” foreign direct investment list months ago, as Premier Wen Jiabao pledged to control growth of the country’s car manufacturing capacity amid slowing demand.

The change was considered a major setback for luxurious carmakers such as Jaguar Land Rover, which was said to be seeking approval to form a 17.5 billion yuan car venture with Chery Automobile.

In a statement yesterday, the chamber said China’s latest restrictions on public fleet supplies contradicted a policy introduced just six months ago that included both foreign and local car brands for officials. It urged Beijing to revise its procurement list.

However, Bill Russo, senior advisor at consulting firm Booz & Co and former head of Chrysler’s business unit in China, said it was not uncommon for national governments to prefer domestic car brands in the procurement of government vehicles. He doubted the European Union could retaliate in any way.
“It was an internal procurement policy,” Russo said.

“Whatever the Chinese government wants to buy, it really is their own choice, I don’t see any trade issues there.”

Russo said the move was actually good for foreign carmakers like Audi to focus more of its resources and energy on China’s lucrative retail sector. Audi said earlier the new restriction would hurt less than 5 per cent of its sales this year.

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