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Bye Bye Black Audi
Summary:Imminent changes to the rules that determine what kind of cars government departments and party organs in China can purchase, could soon boost the fortunes of domestic car manufacturers.

Photo: A black Audi A6 parked out the front of the Great Hall of the People in Beijing
Source: The Times

By Zhou Heshuang (周和双)
Issue 611, Mar 18, 2013
Auto, page 34
Translated by Chen Anqi and Pang Lei
Original article: [Chinese]

Shares in China's FAW Car Co. skyrocketed earlier this week after media reports that various provincial governments and central ministries had put in large orders for Red Flag sedans made by the company .

The news that some governments had begun to place orders with a 100 percent Chinese-owned manufacturer gave further credence to rumors that the Ministry of Industry and Information Technology (MIIT) had made a decision regarding the final draft of new rules that will determine what kind of cars government departments and party organs are allowed to buy.

Ahead of the big jump in stock prices of FAW Car Co., which ceased trading in Shenzhen at around 11am on Wednesday after exceeding the daily 10 percent limit, domestic media had been reporting industry sources as saying that the new procurement rules would be released soon after the end of the meeting of China's parliament in mid-March.

In February last year MIIT published a draft list of 412 vehicles that party and government organs could choose from when it came to purchasing vehicles for official use. Almost all the models listed in the directory were produced by 100 percent Chinese-owned manufacturers. None of the joint-venture brands that make up over 80 percent of the existing government fleet, such as the Audi and Volkswagen models produced by the two separate joint ventures between Volkswagen and Shanghai Automotive Industry Corporation (SAIC) and First Automobile Works (FAW) in Changchun, made it onto the list. No final list was ever published by MIIT.

That draft list followed the earlier announcement of procurement guidelines at the end of 2011 that set new limits on the price and engine size of the cars that officials at various levels could purchase. The lowering of the maximum price that that could be spent on a car for general use was also interpreted as a move to support domestic brands.

Currently, ninety percent of the cars used by officials in China are produced by joint ventures formed by Chinese and foreign brands.

These guidelines stated that every year MIIT should work on putting together a list of qualified vehicles from which various government departments could choose. The regulations also put limits on the price and engine size of the cars that officials of various levels could buy. For instance, cars for senior officials of ministerial rank were to have engines no bigger than 3.0 liters and be worth no more than 450,000 yuan.

According to domestic media reports these standards are to further tightened this year, so that officials of ministerial rank are now restricted to purchasing cars with engines that are no bigger than 2.5 liters and that cost less than 350,000 yuan.

The new standards may also limit officials of deputy ministerial rank to purchasing cars with engines that are no bigger than 2.5 liters and that cost less than 300,000 yuan, which will also be a step down from the 3.0 liter/350,000 yuan vehicles that could be purchased for them in the past.

Finally, even at the lowest level of "general-use" vehicles, reports predict that the limits are being lowered from the current 2.0 liter/250,000 yuan to 1.8 liter/160,000 yuan.

An official with the Henan provincial government told a reporter from the EO earlier this month that they were holding back on purchasing new vehicles for official use because there were still conflicting reports on what the new standard will be. The official told our reporter "If there's not an urgent need, the for the moment we won't be purchasing any new cars, we're still not sure whether the new standard will be 1.8 liter/180,000 yuan or 1.8 liter/160,000 yuan, as I've heard both figures and there has still not been any official announcement."

According to Xu Changming (徐长明), Director of Information Resource Department of the State Information Center, the government should support domestic brands as this is what happens all around the world. "I don't think it's actually that important whether they release the document or not, the key is whether or not in the implementation they are supporting domestic brands. Other countries also don't have these kind of policy documents, but those governments also only spend their people's taxes on local brands."

Dong Yang (董扬), the secretary general of the China Association of Automobile Manufactures (CAAM) noted that "official car purchases only account for 2 percent of total vehicle sales in China, it's actually quite a small market and with different brands each getting a piece of the market, it's unlikely that in terms of actual sales that this will have a big impact."

Mr. An Jin (安进) the General Manager of JAC Motors (江淮汽车), explained "For business, government purchases are not about quantity, a business can't solely rely on sales to government to survive, the key point is that government purchases can guide public opinion. Regular folks look to officials, whatever the officials are driving, that what everyone else wants to drive. If you drive an Audi, everyone else wants to drive an Audi."

Another executive at Guangzhou Automobile Group (GAC) agreed, saying although government cars do not make up a very big proportion of the total market, this move will greatly improve the image of the domestically-owned brands.

Last December, China's new president was quoted as saying "We should gradually start taking Chinese-branded cars, now that we have this design and production capability, it doesn't look good if we always ride in foreign branded cars. A lot of foreign leaders will ride in cars that are made in their country, unless none are manufactured there."

Links and Sources
Economic Observer: 公车采购标准或变 自主品牌备战
Economic Observer Online: China\'s Tougher Car Procurement Policy Provokes European Threats
Caixin: Government Car-Buying Plan Honks for Home Team
Miniistry of Industry and Information Technology: 2012年度党政机关公务用车选用车型目录(征求意见稿)
Miniistry of Industry and Information Technology: 党政机关公务用车选用车型目录管理细则

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