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To approve or not to approve

One after another, new passenger car projects in China have been approved by the National Development and Reform Commission (NDRC), the powerful central government agency in charge of the country¡¯s macro economic planning.


Last year, three new car projects were launched. First, Jianghuai Automobile, one of the leading commercial vehicle manufacturers in China; then Great Wall Motor, a leading SUV and pickup truck maker; followed by Jiangling Automobile, another SUV manufacturer. All three felt much relieved after spending at least a year waiting and lobbying for an approval.


The regulatory guidelines for new passenger vehicle projects were specified in the Automotive Industry Development Policy (AIDP) released by the NDRC in 2004. The purpose was to raise the hurdle for new entrants into automobile assembly. Specifically the AIDP has laid out entry level requirements on the minimum investment amount, scale of production and the minimum R&D spending for any new project.


Such entry hurdles, however, seem unable to cool off the growing investment interest in China¡¯s vehicle assembly business. Moreover, the red tape involved in the approval process of a new assembly project does not seem to dampen their enthusiasm in the least. Each of the three companies mentioned above, for example, spent over a year waiting for the project approval.


Two key departments under  NDRC are directly involved in the approval process. One is the Department of Industry and the other the Department of Industrial Policy. Enterprises must submit supporting documents as proof of their qualifications to these two functionary departments. And final approval comes from NDRC directors.


Senior officials at NDRC seem to be caught in a dilemma. As the country¡¯s macro economic planning body, NDRC has the responsibility to prevent duplicate investments in, what senior officials in the organization believe to be, an overheated industry. Already China has more than 30 car manufacturers and overcapacity has been NDRC¡¯s top concern. Officials at NDRC also fear a possible domino effect. If a new license is offered to one, it would be difficult to refuse the same to another. More than often,  NDRC director responsible for processing applications simply shelves an application without taking any action. This partially explains why all three automakers mentioned above had to wait for an extended period of time before they got their approval.


But on the other hand, NDRC finds it hard to disapprove a new project especially when the project meets the requirements set forth by it.


The result is a prolonged period of waiting on the part of the applicant. And the time taken to acquire the necessary approvals will largely depend on how good the lobbying efforts are, not only from a particular automotive enterprise but also from the active involvement of senior local municipal and provincial officials.


As more enterprises in China are preparing to move into car assembly, NDRC will be confronted with the same dilemma in the foreseeable future. To approve or not to approve, that will remain the question.


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