Member Article

The State Development and Reform Commission issued the Policies for the Automobile Industry on 21 May 2004. The Policies, which entered into force on 21 May, replace the Policies for the Automobile Industry issued in 1994. The Policies aim to restructure and strengthen the automobile industry in China and also provide guidelines for foreign investment in the industry. Reforming the automobile industry The Policies call for an overhaul of the Chinese automobile industry by the year 2010 in order to create large companies that can compete on the international market. As part of this overhaul, car and motorcycle manufacturing enterprises are encouraged to develop international cooperation and large enterprise groups are encouraged to associate or merge with international automobile groups. Trademarks Commencing from the year 2005, all cars and assembly parts manufactured in China will be required to indicate the registered product trademark of the manufacturer. All cars sold in China will have to display the trademark and name of the manufacturer as well as the place of origin in a prominent position. Brand sales The Policies require domestic and foreign car companies to establish a car brand sales and service system as soon as possible. This system can be set up by the manufacturer directly or by car distributors appointed by it. Both domestic and foreign investors will be allowed to conduct brand sales and after-sales service for domestic and imported cars provided they have been appointed by the car manufacturers and have completed the required formalities in accordance with the relevant regulations. The Policies call for the abolition of the approval system for the right to sell cars. The Ministry of Commerce in conjunction with the relevant departments is to formulate new measures for the administration of car brand sales. Under the new system, car sellers will be permitted to develop their car sales business within the scope approved by the State Administration for Industry and Commerce. Sales service The Policies require car and motorcycle manufacturers to standardise maintenance services. Manufacturers should publicly announce when they will stop making certain models and ensure that after-sales service and a reliable supply of spare parts will be available for such models for a reasonable time. Investment Under the Policies, the examination and approval system for domestic and foreign investment in car manufacturers is to be reformed into a dual system whereby certain projects require approval and others solely need to be filed for the record. The establishment of new sino-foreign joint ventures in automobile manufacturing requires approval by the SDRC. The Chinese party in a sino-foreign joint venture to manufacture complete cars, special purpose vehicles, agricultural transport vehicles and motorcycles is required to hold a majority share. If such manufacturer is a company limited by shares, one of the Chinese parties is required to hold a controlling stake that is bigger than the aggregate of the equity held by all foreign investors. Foreign investors in enterprises located inside export processing zones which manufacture cars and car engines for export may be permitted to have a majority share upon approval by the State Council. The Policies permit foreign investors to create two or more joint ventures in China to produce the same categories of vehicles, if they join forces with their existing Chinese partners to associate or merge with other companies in China. Other issues The Policies designate seven ports that can be used to import completed cars. From 2005, cars to be sold on the PRC market can no longer be warehoused in the bonded zones of these ports. The Policies also address various issues aimed at developing a consumer-led automotive market that includes (new and used) car retailing, servicing, financing and related activities.