China: Largest Global Car Markets Restricts 4.5% of Purchases to Domestic-Only Brands

My colleague across the pond, Peter Smith, scoped us on a story lead that is bound to raise some eyebrows in Detroit, let alone this nation's capital (and the WTO). The story in question involves China's decision to exclude all non-Chinese brands from a list of government automobile purchases which represent some 4.5% of "total passenger-vehicle sales" based on the purchase price of vehicles, according to Detroit News and China International Capital Corp (CICC) estimates. Detroit News notes that "All 412 models approved for purchase by state agencies this year will be limited to Chinese brands, according to the Ministry of Industry and Information Technology."

What's behind the move? The above-linked story suggests that "the move will help local brands gain in the government fleet's 80 billion yuan ($12.7 billion) market at the expense of foreign carmakers such as Volkswagen AG, General Motors Co. and Toyota Motor Corp." Chinese sources quoted in the article peg the state-owned fleet at "5.2 million vehicles" which represents about the annual market for new car sales in Japan, Detroit News also notes. Yet there's likely more to the story than meets the eye. According to government sources, Chinese vehicle production was up less than .85% in 2011 compared with 2010, representing a significant cooling in growth of the market (despite the over 18 million units sold). Between 2009 and 2010, Chinese vehicle production ramped up nearly 31%.

Looking at this data, it's hard not to believe that the Chinese government had made yet another short-term decision to preserve local industry in a period of declining growth rates at the expense of trading partner relationships. Regardless of where you stand on the issue -- judging from typical government fleet purchases in the US, including a recent one made by the City of Chicago, local sourcing is also alive and well in the US public sector -- it's clear that the unilateral moves the Chinese government makes regarding trade continue to be as divisive and inward-facing as ever.

As MetalMiner's Lisa Reisman suggests, "one need only refer to a famous Confucius saying to understand how this behavior represents, below the politburo surface, a continuation of centuries of Chinese thinking: 'When it is obvious that the goals cannot be reached, don't adjust the goals, adjust the action steps'."

- Jason Busch

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