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Parliamentary sessions and reform of the auto industry

The 2nd session of the 12th National People’s Congress (NPC) and the 2nd annual session of the 12th Chinese People’s Political Consultative Conference (CPPCC), known as China’s two parliamentary sessions, were held in Beijing last month.

During the annual sessions, members of the NPC, China’s legislature, and members of the CPPCC, China’s political advisory body, discussed a central theme: further economic and political reform. The word “reform” appeared 77 times in Premier Li Keqiang’s report of the government on March 5.

Under the country’s new generation of leaders headed by Xi Jinping and Li Keqiang who are expected to tackle the country’s thorny issues through unprecedented actions, the annual parliamentary sessions have an important bearing on the future policy orientation of China’s auto industry, now a pillar industry indicative of China’s consumer confidence as well as the country’s overall economic performance.

Some 40 members of the NPC and CPPCC are from the automotive sector, including the outspoken Li Shufu, chairman of both Geely Group and Volvo Cars. They submitted concrete legislative proposals on a wide range of issues relating to the country’s auto market, consumers and the society. Although few of such proposals in the past went into the legislature, their proposals this year pointed to the direction of where China’s future policy orientation in the automotive sector is heading.

One example is China’s 50:50 equity share control policy over Sino-foreign vehicle joint ventures. Already the consensus is that such a control will be removed eventually even though the government may want to hold onto it as much longer as it can. Miao Wei, NPC member and Minister of Industry and Information Technology, admitted that it would only be a matter of time before the equity share is lifted. But he said his ministry would postpone the change to a “later” date compared to other industries in order to offer “more time for independent Chinese vehicle brands to become more competitive with multinational brands.”

Another example is that China may finally consider policy support for low-speed EVs in recognition of their high market potentials in China’s vast rural areas. CPPCC member Ouyang Minggao predicts that 2014 may be China’s electrification year.

For China’s automotive sector, both parliamentary members and industry analysts believe that it is high time for the country to draft an updated automotive industry policy. Current policies adopted in 1994 and 2004 are outdated and no longer commensurate with the changed market situation. Even though the 50:50 equity share control for Sino-foreign assembly JVs will not be lifted overnight, major regulatory changes in support of less administrative control, ownership reform of large state-owned automakers, more open and equitable market competition are expected.

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