- The Washington Times - Wednesday, June 2, 2004

SHANGHAI, China (AP) — China has tightened rules for opening new car factories, trying to block small-scale producers and force its automakers to consolidate into bigger companies that can challenge foreign competitors.

The new rules, issued by the National Development and Reform Commission and reported by state media yesterday, set the minimum investment for new vehicle factories at $242 million.

The requirement is intended to discourage smaller companies from setting up new, inefficient factories. China has more than 100 vehicle manufacturers, but most operate on a scale too small to compete with world-class automakers.

Cars, along with steel and aluminum, are also among several sectors where the government is trying to squeeze soaring investment to help ease inflation.

Beijing is rushing to revamp the local industry to prepare for the gradual opening of its auto market as a result of its entry into the World Trade Organization three years ago.

The new rules, issued Tuesday, loosen decade-old restrictions on foreign carmakers.

They include eliminating a requirement to use China-made auto parts for at least 40 percent of vehicles made in China, and scrapping a limit on joint venture factories to two plants per category of vehicle.

However, the rules require that a Chinese shareholder must hold an equity stake greater than the combined shares of all foreign partners in any company with publicly traded shares. The Cabinet can allow majority foreign ownership, though, in joint ventures producing for export.

“We are pleased to see the publication of the new auto policy,” said Phil Murtaugh, chairman and chief executive officer of GM China Group. “We believe that GM’s way of operating is in line with the objectives of the policy, as it supports the healthy development of a strong industry.”

Ford Motor Co.’s China spokesman, Kenneth Hsu, also welcomed the policy, saying it was “very critical for the development of the Chinese auto industry.”

Foreign automakers have long hoped that China would let them sell their imported vehicles here. However, the new policy says another set of rules will be issued for brand distribution.

The new rules say new car plants have a big enough capacity to produce at least 50,000 four-cylinder cars or 30,000 six-cylinder cars a year. New heavy-duty truck plants must be able to make 10,000 units a year.

Investors must self-finance $96.8 million of the minimum $242 million investment. That rule is in line with plans to curb bank lending for auto-related projects.

The new rules also set emissions and fuel efficiency targets and offer tax incentives to encourage development of more environmentally friendly cars.

Companies setting up new factories have to commit at least $60.5 million to research and development.

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