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Government procurement to exclusively choose local vehicles

Three months after China published the Administrative Details for the Selection of Official Automobiles Used by Party and Government Organs on November 19, the Ministry of Industry and Information Technology (MIIT) released the 2012 Catalogue of Automobiles for Selection as Official Cars for Party and Government Organs on February 24 on its website for public comments.

Listed in the 2012 Catalogue are 412 passenger vehicle models (265 cars, 64 MPVs, 78 SUVs and five battery electric and plug-in hybrid vehicles) made by 25 local Chinese manufacturers.

Based on the new standards of government procurement, passenger cars for official use must be no larger than 1.8L in engine displacement and no higher than ¥180,000 ($28,571) in cost. Engine sizes for MPVs and SUVs listed in the 2012 Catalogue are under 2.5L.

Although a limited number of passenger vehicles made by foreign-invested joint ventures could fall within such specifications in displacement and cost, not a single foreign brand is found on the list.

MIIT’s Department of Equipment and Industry explains in the preface of the 2012 Catalogue that the list has been chosen by a “team of experts” through “inspection of materials submitted by automobile manufacturers and calculating the vehicle’s index of price/performance ratio.”

This refers to a critical criterion for manufacturer eligibility stipulated in the Administrative Details: a minimum of 3 percent expenditure of annual revenues in the past two years in R&D investment. None of the foreign-invested JVs is able to meet such a criterion.

And it is also a known fact that vehicles made by joint ventures are unable to compete in cost compared to those produced by local independent automakers.

Although it is against WTO rules if foreign products are discriminated against and refused national treatment compared to local products, the new government procurement standards and the resulting 2012 Catalogue can hardly be described as discriminatory because the standards apply to both domestic and foreign-invested carmakers in China.

In fact, foreign brands such as Mercedes-Benz and Audi may still be purchased for official use by senior government officials. “Official automobiles,” as is stated in the Administrative Details, refers to “motor vehicles used by Party and government organs to conduct official business, which are divided into ordinary and law-enforcement vehicles.” This may leave the door open for “special” official vehicles.

But China’s new government procurement rules, if strictly enforced, would have a major impact on future consumer demand and on product planning for Sino-foreign joint ventures.


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