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China may buy only domestic cars for official use

Proposal would help its struggling auto industry

BEIJING - The ubiquitous official black Audis and Mercedes-Benzes racing through the streets of Beijing and almost every other city in China could soon become far fewer, under recently proposed regulations that would require government agencies to buy only Chinese brands.

On one level, the new rules would seem like a rare example of China’s authoritarian Communist leaders bowing to public opinion.

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Popular microblogging sites, akin to Twitter, have been filled with sharp criticism of the perks enjoyed by public servants, such as chauffeur-driven cars while most residents cram onto packed subways or slog through traffic jams on overcrowded buses. The criticism reached a peak during this month’s annual session of China’s national legislature, which saw parts of Beijing literally choked with official cars - almost all of them high-end foreign brands.

But the government’s push to have its legion of employees riding in Chinese brand cars - chosen from an approved list of 412 models issued by the Ministry of Industry and Information Technology - also seems to have a mercantilist aim: to protect China’s struggling domestic auto industry.

Since 2009, China’s appetite for new cars has exploded, making it the world’s largest manufacturer, and largest market, for automobiles. Most of that growth has been to the benefit of foreign carmakers - led by Volkswagen, General Motors, Toyota, and Audi - which have built local manufacturing plants, despite government rules that require foreign firms to enter into 50-50 joint-venture arrangements with Chinese automakers.

More than 70 percent of passenger cars bought in China are foreign brands, according to industry analysts. In the past year, local Chinese carmakers have seen their market share drop an additional 2 to 3 percentage points - enough, analysts said, to set off alarm bells among Chinese leaders concerned about seeing a domestic industry swamped on its home turf, despite huge advantages, by foreign competition.

“The domestic car industry is under pressure - they are losing market share,’’ said Klaus Paur, a Shanghai-based analyst on the Chinese auto market for the French research firm Ipsos. “The Chinese manufacturers are just not able to keep up with what foreign manufacturers are doing.’’

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Economists and others say the response is worrisome, since it sends a strong signal that the central government in Beijing is ready to do whatever it takes - even skirting the spirit of global open-trade rules - to help prop up a Chinese industry that needs protecting.

“The whole automotive industry in China is very much supported by the government,’’ Paur said. A rule that requires government agencies to buy Chinese brands “is pointing in the direction that they want even more to support domestic industry and make it a little more difficult for foreign car manufacturers to be successful.’’

As China’s car market was exploding in the past few years, the problem for local carmakers was not so acute. Since the market was growing so fast, all the automakers, foreign and domestic, were reaping the benefits.

But China’s economy has entered a slowdown period, with growth projections for this year trimmed to just 7.5 percent after years of double-digit gross domestic product gains. The car market, while robust, is seeing signs of cooling down, and local manufacturers are feeling the pinch the most.

Part of the reason, auto industry analysts said, is that Chinese carmakers have not been able to successfully build their brands, which include Geely, Chery, Great Wall, and Red Flag.

As China’s increasingly affluent consumers have become more brand-savvy, they have tended to perceive foreign cars as higher-quality, longer-lasting, and with better safety standards. In addition, there is the status element: driving a foreign car - even one made in China - conveys more of an image of wealth, power, or sometimes simply good taste.

Domestic carmakers also have been hurt as GM, Ford, and other foreign manufacturers have increasingly moved to less-expensive, lower-end brands introduced primarily for the Chinese market, further crowding out the space once dominated by local producers.

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