Reuters, February 28, 2012
By Fang Yan and Terril Yue Jones
Feb 28 (Reuters) - When China's leader-in-waiting Xi Jinping pulls up in a motorcade sometime in the next decade, he will probably not be riding in one of the black Audis that have become standard for Chinese top brass.
Instead, if Beijing implements new rules requiring the government to buy only local car brands, he will likely emerge from a Red Flag limousine, the boat-like chariot that ferried around Chairman Mao Zedong from the 1950s to the 1970s.
The move, announced over the weekend, is not final and would likely have a limited effect on foreign automakers in China, since government fleet sales account for less than 10 percent of car sales, according to some estimates.
But the policy is good news to Ling Liang, a sales manager at an FAW dealership in Beijing, where only two cars sat in a dimly lit showroom, with no customers.
"We have long tradition and experience, more than other Chinese brands," Ling said of FAW Group, whose brands include Besturn mid-range sedans and the former Red Flag.
China is the world's largest auto market, but the legions of mostly German cars with tell-tale license plates bearing government, military and police designations are seen by some as diminishing that achievement.
And premium government sedans often flout traffic laws, frequently engendering resentment from a public which sees them as symbols of abuse of power and a widening wealth gap.
The government's diktat has not been explained publicly. The ministry posted a statement on its website saying only that Chinese brands must be purchased for government fleets, and asked for public comment.
It's believed however to be an attempt to put a more Chinese face to government convoys, and mollify public indignation over extravagant and arrogant behaviour by officials.
"Chinese people are fed up with 'the three excesses' of public officials: fancy cars, fancy meals and fancy travel," said Xu Guoliang, a 36-year-old architect who was getting his A6 serviced at an Audi dealership in Beijing.
China is Audi's biggest market. It is the largest German luxury marque here, but its government sales in China reach only into the low single-digit percentage; the bulk of its customers are companies and individuals.
Besturns are more modest - the B50 with a 4-cylinder, 1.6-liter engine and the B70 with a 2.0-liter six-beater.
"They're also more affordable," Ling says.
An Audi A6 starts at 390,000 yuan ($62,000) and goes up to 700,000 yuan ($111,000) - which could buy you more than seven entry-level Besturn B50s, which start at 93,800 yuan ($15,000).
Even the most lavishly apportioned Besturn B70 sells for 165,000 yuan ($26,000), little more than half the starting price of the cheapest Audi, the compact A3 at 260,000 yuan ($41,000).
FAW is planning to revive the Red Flag brand, working on a project called the C301 which will rival the A6 when it debuts.
With 14.5 million passenger cars sold in China last year, annual government purchases of some 80 billion yuan ($12.7 billion) are still a small slice of the overall market, which is dominated by increasingly wealthy individual consumers.
But domestic carmakers such as SAIC Motor, FAW Group, Great Wall Motor Co Ltd and Chery, which produce extended-wheelbase cars, could get a boost from the policy.
"It's good that we're getting some support from the government," said Victor Yang, spokesman for Geely Automobile Holdings Ltd. "But we should be counting on ourselves, not the government, to improve our competitiveness."
Audi, owned by Volkswagen, has by far been the preferred brand of Chinese officialdom going back to the 1980s.
"It's luxury, but it's low-key," said Wang Yang, an Audi sales consultant in Beijing. "A lot of Chinese don't like to show off."
Sales of foreign automakers are not expected to suffer much.
"It's like asking an American car company, 'Are you going to suffer from not selling as many taxis'?" said William Russo, an industry veteran who runs the auto consultancy Synergistics in Beijing.
"Beijing's new rule gives them the perfect rationale to really push to reposition themselves away from being officials' cars to being business-owners' cars," he said.
"It will make foreign companies more competitive in the business-owner segments."
However, the government list did not include luxury brand Volvo, which is the only Chinese-owned premium brand currently in the market.
Red Flag and SAIC's Roewe could benefit the most, as they are the only Chinese brands that come close to the plushness and leg-room of an Audi or a Mercedes-Benz.
Already, some state clients are turning to Chinese brands.
"Most of our clients are consumers, but we do have some government clients, especially for the Roewe 750 model," said Wei Jia, a manager at an SAIC dealer in Beijing.
"It's a good car and not that expensive. I'm sure the new policy will help our sales."