China Discriminates Against Privately Owned Local Car Makers

State-Owned Domestic Auto Companies Are Favored With Money and Quick Approvals

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Private Chinese automakers didn't exist until the late 1990s. As young and inexperienced as they are, the companies have established a solid foothold in China and steadily expanded exports. You might think China's government would lionize these companies for creating jobs and wealth. But no. While their products are well received overseas, China's private automakers face discrimination at home.

China's bureaucrats routinely favor state-owned automakers with cheap loans, generous subsidies and the quick approval of new ventures.

Here's an example. In 2008, Lifan Industry Group Co. asked municipal officials in its hometown of Chongqing for permission to set up a consumer finance unit. Lifan, which is privately held, still hasn't received approval for the license.

Has Chongqing made it equally difficult for other local automakers to set up consumer loan companies? No. Last year, the municipal government issued a license to Qingling Motors Co., a local state-owned maker of light commercial vehicles. When Chongqing's new communist party chief Sun Zhengcai visited several local manufacturers last week, Lifan Chairman Yin Mingshan complained about the unfair treatment.

I suppose it's a small measure of progress that Yin complained at all. He dared not raise the issue with Chongqing's former party chief, Bo Xilai, who promoted Maoist rule and persecuted local private business owners by calling them mafia godfathers. Last year, Bo was sacked by the central Chinese government after he accepted bribes and covered up his wife's murder of a British businessman.

Lifan is not alone. Zhejiang Geely Holding Group Co. is another private automaker that has been treated like a second-class citizen. After Geely purchased Volvo Car Corp. in 2010, it requested government permission to set up a joint venture with Volvo to produce cars in China. Two years later, Geely still waits for approval. Meanwhile, the state-owned Chery Automobile Co. won approval for its joint venture with Jaguar Land Rover last year just a few months after filing its request.

China began to reform its economy in 1978. Thirty-five years later, the government still maintains close ties with state-owned companies and favors them over private businesses.

So, what are the implications? Inefficient state-owned automakers still rely on joint ventures with foreign brands for their profits. They have yet to learn how to compete. By contrast, private companies like Lifan and Geely are pushing themselves to be more efficient and innovative. They compete aggressively with foreign automakers in China. And they export 20 to 50% of their cars and trucks to other emerging markets.

But their unfair treatment by China's government will certainly slow their growth. And that will hurt the competitiveness of China's entire domestic auto industry.

Separately, Bloomberg reported today that sales of light vehicles in China rose by a modest 4.3 % to 19.3 million units last year, missing official projections for deliveries of as much as 20 million made in July, the China Association of Automobile Manufacturers reported Friday. Sales of passenger cars rose 7.1% to 15.5 million units, and SUVs were the fastest-growing segment with a 26% gain. However, sales of commercial vehicles fell 5.5%. Passenger-vehicle sales unexpectedly shrank in September after anti-Japan demonstrations sparked a backlash that hurt sales at Toyota Motor Corp. and Nissan Motor Co. Sales of Japanese brands are gradually recovering. In 2013, wholesale vehicle deliveries in China are expected to rise 7% to nearly 20.7 million units, led by demand for passenger vehicles, CAAM said in its statement.

--Automotive News China and Bloomberg News--

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