New China leaders may boost auto industry
SHANGHAI -- China's government has kept a tight grip on the domestic auto industry for years. But that may be about to change: The country's new leaders seem likely to take a more open and pragmatic approach to the industry.
China started shifting from a controlled economy to a market economy in 1978. Thirty-five years later, the government maintains close ties with state-owned companies, including automakers, and continues to favor them over private businesses.
While letting state-owned automakers and their joint ventures with global brands add plants, it remains reluctant to let private companies enter or expand in the domestic auto sector on the grounds that overcapacity would result.
For instance, the government vetoed the 2010 application of Sichuan Tengzhong Heavy Industrial Machinery Co., a private Chinese construction equipment maker, to acquire Hummer from General Motors and build Hummer vehicles in China.
But now that China's once-in-a-decade leadership change has brought a new premier, president and ministers into power, private automakers in China likely will receive faster government approval to increase capacity.
Li Keqiang, the new premier, vowed last month to further shift China toward a market-based economy.
He also urged the central government to cut red tape and stop interfering with the market.
At an economic forum last month in Beijing, China's minister of Industry and Information Technology said that government should tolerate -- or even welcome -- moderate overcapacity in the auto industry.
The minister, Miao Wei, said that moderate production capacity would force enterprises to compete with one another. If goods are in short supply, enterprises would have no incentive to improve, he said.
The government could do a lot to level the playing field for automakers in China. It could drop the requirement that foreign automakers seeking to build cars in China must establish joint ventures with local companies, for instance.
But relaxing control on adding capacity is a step in the right direction.
You can reach Yang Jian at email@example.com.