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China to cut aid for car industry

2011-12-30 11:28

BEIJING, China - China has announced that it will "withdraw support" for foreign investment in its auto manufacturing to encourage domestic industry in the world's largest car market.

Some of the world's biggest car companies, including GM, Honda and VW, have long had operations in China but the state Xinhua news agency said the government would "withdraw support for foreign capital in auto manufacturing".

The decision is unlikely to see global firms leave the country but will make it harder for new carmakers to enter.

OVER-CAPACITY WORRIES

The guidelines from the National Development and Reform Commission, signal an end to incentives for foreigners and will discourage fresh projects in China. The move comes as sales in the world's biggest market slump and Beijing tries to shore up the economy by helping domestic companies and opening up other industries to foreigners such as environmental technology.

John Zeng, director of forecasting for research firm LMC Automotive, said: "The government is signalling that it is worried about over-capacity (in the auto industry) and that it will reserve any new capacity for local brands or new-energy vehicles.

"In previous years, a joint venture in China enjoyed tariff reductions on the import of new equipment. There will now be no such incentives, so investment costs will increase.

"New foreign brands could be restricted."

The policy will go nto effect on January 30. 2012.

GM: 'NO NEGATIVE IMPACT'

Zeng added: "This new policy is not a surprise. Previously the government announced that any new capacity should be for local brands so it is reclarifying what has already been said."

GM said it did not think the policy would affect its operations too much. A spokesperson said: "We expect the new guidelines to have minimal negative impact on GM's future plans in China."

China overtook the US as the world's No.1 car market in 2009 and soared by 32% in 2010 to a record 18-million units but the sector has since lost steam after Beijing phased out sales incentives such as tax breaks for small cars.

AFP