China governments pick local over foreign JV cars

BEIJING ( Caixin Online) � Distant rumblings of something big coming down the road were heard three years ago, when a leading official with the Central Government Procurement Center hinted that bureaucrats might start favoring cars made by domestic companies over foreign-domestic joint ventures.

The central government, said the official, would �take the lead� in buying Chinese-brand and energy-efficient vehicles. In so doing, he implied a reversal for a years-long government bias toward vehicles made in China by foreign-domestic ventures such as the General Motors Corp. GM �tie-up with SAIC CN:600104 �and Volkswagen AG�s VLKAY �Shanghai Volkswagen.

The central government between 2005 and 2009 bought only about 1,000 vehicles altogether from wholly domestic manufacturers such as Chery Automobile Co., HuaChen Group Auto Holding Co., and Faw-Benteng Automobile Co. � a fraction of the 200,000 vehicles procured by all governments in China in a typical year.

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Little changed after the official�s 2009 comments: Government agencies continued leaning toward joint-venture brands for their fleets.

But the big change once heard rumbling in the distance apparently arrived with the Feb. 24 release of a draft procurement policy issued by the Ministry of Industry and Information Technology.

MIIT released the Model Directory for Selection of Vehicles for Use by Party and Government Organs 2012 and then invited industry and government agency comments until March 9. A final version was expected by April.

Almost all 412 types of gas-powered and diesel engine, multi-purpose and sport utility vehicles, as well as alternative-energy cars listed in the directory and eligible for purchases would be supplied by 100% Chinese manufacturers. None of the joint-venture brands the government has been buying for years, such as Shanghai Volkswagen�s cars and SAIC-GM�s Buick, were on the list.

The only exceptions to the policy are foreign-built and joint-venture luxury vehicles bought for officials ranking at or above the vice-minister level including Audi, Mercedes Benz and BMW models.

Scrapped under the MIIT proposal would be a longstanding government policy that offered equal levels of government policy support, such as government-guaranteed bank financing, for joint-venture and domestic manufacturers.

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Domestic carmakers and their supporters are cheering MIIT�s directory and what could become a new, hometown advantage. Anhui Province-based Chery and Geely Holding Group of Zhejiang Province are among the companies that would benefit.

Opponents include the European Chamber of Commerce in China, which on March 5 pleaded for Beijing to put joint-venture vehicles back on the procurement list. Along with European and U.S. companies, Japanese automakers with Chinese ventures such as Guangzhou Honda Automobile Co. and Dongfeng Nissan Passenger Vehicle Co. would lose government customers.

Homefield advantage

The procurement plan came on the heels of new limits on government car costs released in November by MIIT, the Government Offices Administration of the State Council, and the Administration of Offices Subordinate to the Central Government.

The new cost rules signaled support for domestic automakers by setting a low price limit of 180,000 yuan ($28,617) per general-use or law-enforcement vehicle with a maximum 1.8 liter engine. The previous limit, which had helped foreign and joint-venture companies, was 250,000 yuan for each vehicle with an engine up to 2.0 liters.