European automakers believe they share responsibility with the government and other stakeholders in China's auto industry to foster sustainable mobility, said the position paper of the Automotive Working Group of the European Union Chamber of Commerce in China.

Members of the working group comprise EU automakers with investments in China.

These companies have invested 10 billion euros (US$12 billion) to date and are directly employing 60,000 people in China. With their Chinese joint venture (JV) partners they produced, in 2004, about 50 per cent of all passenger cars sold in China.

The European auto industry wishes to pursue a constructive dialogue with all concerned parties in China, said the group.

Limitations on investment

The group said restrictions imposed on foreign investors, dating back to the economic and structural context of China 20 years ago, are still in force today.

China's Auto Industry Development Policy promulgated on June 1, 2004 confirms foreigners are not allowed majority ownership in the auto production industry, and that projects in which foreign producers participate in China are limited to two for the production of passenger cars and two for commercial vehicles known as "2-2".

After China's entry into the WTO, the Chinese auto industry needs more than ever to meet international standards and to be part of a global structure.

Promoting international competitiveness is, indeed, a key goal of the Auto Industry Development Policy. Yet limitations on investment run counter to that goal, said the group.

If the auto industry is to become a pillar of the economy, manufacturers should be allowed to make investment decisions primarily based on the risk they are prepared to take.

As competition intensifies, managerial deadlock in 50-50 Sino-foreign JVs becomes an increasing source of inefficiency. As the Chinese market matures and hence its rewards diminish, foreign manufacturers are increasingly hesitant to transfer new technology to 50-50 JVs.

The group's recommendation is that foreign majority investment should be allowed and the 2-2 regulation should be eliminated.

Local content

The Administrative Measures for the Import of Automobile Components Fulfilling the Characteristics of a Whole Vehicle, effective as of April 1, 2005, amount to a new local content requirement putting a cost burden on manufacturers. The measures will set back the integration of China's auto industry into the global economy, said the working group.

The measures require auto manufacturers to pay, for key imported parts used to assemble vehicles in China, the same import duty as for complete imported vehicles. The working group considers the measures counterproductive and recommends that their implementation be reviewed.

No newly-introduced vehicle model can attain the intended level of local content at once, and niche products may never reach sales volumes in China that could justify investing in local integration of their production.

In the highly globalized production systems of the international auto industry, the free flow of components between continents balances global needs and achieves economies of scale that result in practically priced products.

Type approval

The China Compulsory Certification (CCC) regulation in force since 2002 restricts the marketing potential of vehicles manufactured in China intended for exports, and at the same time saddles imports of vehicles into China with considerable costs.

Imported vehicles already type-approved under European Directives conform to the United Nations 1958 Geneva Agreement are subject to the CCC regulation as well. They have to pass renewed homologation tests in China conducted exclusively in Chinese laboratories designated by the government.

It appears fully advisable for China to adhere to the UN 1958 Geneva Agreement and the regulations annexed to this agreement, recommended the working group.

Scrapping rules

China has rules to limit the use time of a vehicle to 15 years, at which point it has to be downgraded or scrapped. These rules would be unnecessary if the existing annual inspection of vehicles were undertaken with more rigour. This would allow investment in commercial vehicles designed to last much longer than 15 years.

A transport business investing in a commercial vehicle calculates the return on its investment. China's scrapping rules limit the lift-time of this investment to 15 years, whereas the European auto industry routinely offers modern commercial vehicles with a useful life-time of 30 years.

The working group said a more dependable criterion than the 15-year scrapping rule are proper annual safety inspections. The obligation to pass an annual safety inspection exists in China, but evidence suggests the system could be made more stringent and more comprehensively implemented.

Fuel tax

With the total number of vehicles in China exceeding 20 million, a regulatory incentive is needed to promote the use of less wasteful, more efficient and cleaner cars, trucks and buses: a fuel tax.

China is increasingly dependent on imported oil. While the necessity of regulating fuel consumption for new vehicles is not disputed, measures aimed at replacing older, wasteful and polluting vehicles at a faster pace are bound to have a proportionally greater effect.

In this respect, the working group advocates the introduction of a national fuel tax in China in lieu of local road tolls.

There is great uncertainty about how the new fuel consumption regulation (Phase I) in China, effective from July 1, 2005, will in practice be enforced. Based on vehicle weight classes, it would lead to a ban on high-performance, heavier cars. Environmental concerns make the introduction of fuel consumption limits a necessity.

It is not clear, however, how vehicles that do not comply with these limits will be treated. One suggestion is that they could be banned from the market: but, as the limits are more stringent for high-performance and heavier cars - a segment where only imported cars are currently offered - this would amount to a trade barrier for foreign manufacturers.

Experience from other countries shows that the environmental aim of similar regulations can be attained with resorting to discriminatory measures. Uncertain about the way in which the fuel consumption regulations will be applied and enforced, the working group would like to see implementation rules developed in consultation with the auto industry.

(China Daily 09/05/2005 page1)