China enforces new rules to discourage foreign investments

Article by Anita Panait, on January 31, 2012

China’s withdrawal of support for foreign investment in the auto industry finally took effect last Monday. The withdrawal was based on a new set of rules that the Chinese government said was aimed at encouraging the domestic car industry. China’s National Development and Reform Commission (NDRC) and Commerce Ministry drafted and released the rules on December 30. "It's a government decree that has legal force," a spokesman for the NDRC told AFP, confirming the guidelines took effect Monday.

The new guidelines were made "because of the need of the healthy development of domestic auto making," the official Xinhua news agency said at the time. The new rules took effect despite the slowdown of car sales in China. The Chinese government is trying to boost its economy by focusing on its local auto manufacturers while encouraging foreign investments on other industries like environmental technology.

Car sales in China grew by only 2.5% to 18.51 million units in 2011, compared to over 32% in 2010, according to China Association of Automobile Manufacturers. This slowdown was mainly attributed to China’s decision to cut sales incentives and some cities’ restriction on car numbers.

The latest restriction would affect productions of several large car makers that have operations in China, including General Motors, Volkswagen and Honda. VW is unfazed as it has recently disclosed plans to build a plant in Ningbo.  The restriction also failed to demoralize other carmakers that have yet to invest in China. French carmaker Renault has announced it will commence production in China along with local partner Dongfeng as early as 2014.

Topics: china, investment

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