China Sets Curbs On Official Cars

BEIJING—China plans to force government officials to stop buying foreign brands like Volkswagen and Toyota and buy only locally branded cars, in its latest effort to bolster the local industry amid slowing growth and toughening competition.

The “buy China” effort is likely to have a mostly symbolic impact, according to industry experts, because government purchases make up a small part of a passenger-car market that totaled 14.5 million vehicles last year. Its impact could also be muted depending on the final rule as well as enforcement.

But it adds to the rising number of regulatory restrictions facing foreign auto makers, adding to what some foreign auto executives say is a worrying environment. Previous measures include an increasingly restrictive approval process for expansions and a shift away from efforts to draw foreign capital to the industry.

No longer will China allow local government official to buy Audis.

China’s Ministry of Industry and Information Technology on Friday posted a list of 412 vehicles that are likely to be approved for purchase by government agencies this year. The list didn’t include any foreign models. The ministry said the guideline is open for public comment until March 9.

There was no explanation from MIIT on its website as to why foreign-brand vehicles are excluded. Ministry officials declined to comment.

Currently, government officials and agencies are allowed to purchase any brand as long as vehicles are produced in China and meet certain pricing and other requirements. That makes a wide variety of brands, from consumer brands like Toyota Motor Corp. TM +0.38% to high end brands like Volkswagen AG’s VOW.XE 0.00% Audi, available for purchase by officials. Toyota officials declined to comment, and Audi wasn’t available for comment.

China spends between 70 billion and 80 billion yuan (roughly $11.1 billion to $12.7 billion) a year on government-vehicle purchases, accounting for less than 5% of the country’s overall annual passenger-car demand, said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight. Government’s share of such purchases has shrunk as sales to private buyers have surged in recent years.

“For foreign companies, they would lose small volume,” Mr. Zhang said. “It’s not really a huge deal for them.”

Domestic auto makers have borne the brunt of slowdown in growth in China’s car market, as the government weans consumers off incentives meant to spur economic growth. Passenger- and commercial-vehicles sales in China totaled 18.51 million vehicles in 2011, up 2.5% from the previous year. Sales rose 32% in 2010 and 46% in 2009.

The new restrictions could put a spotlight on the driving habits of senior officials. High-end brands like Audi and Daimler AG’s DAI.XE +0.46% Mercedes-Benz that bear the white license plates that denote public officialdom are visual reminders of China’s wealth gap and feed into perceptions of corruption.

Audi parent Volkswagen said on Monday that “the economic consequences of these new regulations are limited.

“The majority of the Volkswagen Group China’s sales are conducted with private costumers,” the company said. “The amount of the so-called fleet sales with government vehicles has been at a lower single-digit percentage range for years.”

The impact will depend on the final rule, as well as how strictly it is implemented. A senior attorney at a foreign auto maker said he has seen similar “buy-China-car” attempts in the past. “Even if a list like this becomes a real policy, it’s unlikely it is going to be enforced aggressively,” he said. “I have heard it and seen it before.”




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