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MIIT and NDRC issue new guidelines on automotive investment

BEIJING – The National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) jointly released a new set of guidelines on June 12 aiming to alter the structure of the auto industry, improve the administration of automotive investment projects, enhance monitoring and warning mechanisms of production capacity and standardize supervision and administration of the industry.

The Guidelines on Improving the Administration of Automobile Investment Projects (hereinafter as Guidelines) went into effect on the same day.

A major highlight of the Guidelines is that the door for traditional fuel-powered vehicle investment projects is virtually shut but new Sino-foreign joint ventures that produce only battery electric vehicles will no longer be bound by the Automotive Industry Development Policy (AIDP).

The following is a summary of the key highlights of the four sections on structure adjustment, investment administration, capacity monitoring and industry supervision:

1. Promote the Adjustment of Industry Structure

Optimize output capacity landscape for traditional fuel-powered vehicles. Auto capacity should be shifted to competitive regions with strong industrial foundations and fully developed supply chains. New output capacity should be added in provinces where capacity utilization over the two previous years are higher than national average (capacity based on 250 working days and double shifts). Regions and companies with low utilization of auto capacity are encouraged to ramp up mergers and reorganization, and accelerate technological advancement, so as to improve their competitiveness and boost the utilization of their auto capacity.

Promote the orderly, healthy, and scientific development of the new energy vehicle (NEV) market. Encourage existing automakers that are engaged in the production of traditional fuel-powered vehicles to develop NEVs to help drive the growth of the NEV industry.

Encourage the creation of outstanding and competitive automotive companies. Guide automakers to enhance independent innovation capabilities while supporting them to formulate scientific investment plans. Encourage automakers to conduct in-depth capital, technology and output cooperation, while accelerating reforms of state-owned automotive enterprises. Encourage enterprise M&As and strategic collaboration to improve the concentration of the auto industry.

2. Improve Administration of Automotive Investment Projects

Strictly control additional output of traditional fuel-powered vehicles. In principle, the government will not approve the following types of investment projects of new automotive enterprises that aim to produce traditional fuel-powered vehicles: 1) Newly established traditional fuel-powered vehicle investment projects with independent legal representative; 2) investment programs across passenger and commercial vehicle segments by existing automakers; and 3) cross-provincial, autonomous region and independently planned city investment projects by existing automakers with production that are suspended or semi-suspended, consecutive years of losses, insolvency and live on government subsidies or bank loans.

Existing automakers that apply to expand capacity of traditional fuel-powered vehicles must simultaneously meet the following requirements: 1) Capacity utilization of the previous two years higher than industry average; 2) Share of NEV production higher than industry average; 3) R&D expenditure as a percent of sales of the previous year higher than 3 percent; and 4) Products are internationally competitive. Existing passenger vehicle makers that apply to add capacity of traditional fuel-powered vehicles must meet national standards on corporate average fuel consumption (CAFC) requirements in addition to the above requirements.

Make clear approval qualifications for investment projects, including investment programs launched by passenger vehicle companies and commercial vehicle companies across different passenger vehicle and commercial vehicle market segments. Requirements include: complete R&D experience, professional R&D team and forward R&D capabilities of products being produced, products reach advanced levels of similar existing products and share of NEV production in the previous year higher than industry average.

New engine investment projects must meet the requirement that specific power of gasoline engines to be produced is no less than 70 kW and diesel engines no less than 50 kW.

Set investment requirements for NEV manufacturers, support international cooperation, and encourage companies to take full advantage of international technology, capital, and HR resources to enhance the industrialization level of Chinese-made NEVs.

Specifically, investment projects by new battery electric passenger vehicle manufacturers (including existing commercial vehicle manufacturers that plan to produce batter electric passenger vehicles) must meet requirements in the Administrative Regulations on New Battery Electric Passenger Vehicle Manufacturers.

Investment projects by new battery commercial passenger vehicle manufacturers (including existing passenger vehicle manufacturers that plan to produce batter commercial vehicles) must simultaneously meet the following requirements: has complete R&D experience, professional R&D team and forward R&D capabilities; has core technologies and related testing and inspection capabilities of whole vehicle and drive control system, power battery system, vehicle integration and light weighting; investment project has production system for high performance power batteries, drive system, control system and whole vehicle (including body forming, painting and general assembly); has capabilities of product quality assurance, sales and aftersales service and operations supervision, as well as brand and registered trademark ownership of products being planned; products to be produced have energy consumption and range specs that have reached domestically advanced levels. Existing battery electric vehicle manufacturers that aim to expand capacity must have capacity utilization of the previous year higher than industry average.

AIDP’s approval requirements of new Sino-foreign joint venture passenger car investment projects and limit on the number of Sino-foreign JVs only apply to traditional fuel-powered vehicles. Newly established Sino-foreign battery electric vehicle JVs will be approved via the Administrative Regulations on New Battery Electric Passenger Vehicle Manufacturers.

Fuel cell vehicle investment projects will be approved through battery electric vehicle administration regulations but plug-in hybrid investment projects will be approved through traditional fuel-powered vehicle administration regulations (e.g. AIDP).

Adjust the administration model of automobile investment projects. Automotive investment projects that require approval will be executed through the Government Approved Investment Projects Catalogue (2016 Edition). New special-purpose vehicle investment projects no longer need to be record-filed with the NDRC. Other investment projects that previously needed to be record-filed with the NDRC as required by the AIDP can now be record-filed with the provincial-level administrative departments for investment.

3. Strengthen Capacity Monitoring and Warning Mechanisms

Establish an automobile production reporting system, under which manufacturers of automobiles, engines, and power batteries should report their product quality, available production capacity, production capacity already under construction, and planned production capacity to the provincial development and reform commission and the provincial industry and information technology authority, as well as the NDRC and the MIIT before the end of January each year. The provincial commissions and ministries then will report the same data to the NDRC and MIIT by the end of March every year.

Issue information for vehicle production capacity and strengthen early warnings. NDRC will organize industry associations and relevant organizations to work on annual checking and information release of auto production capacity. The move is aimed at revealing changes to production capacity in time, reinforcing supervision on production capacity, and guiding the investment by enterprises and social capital.

4. Standardize Industry Supervision and Administration 

Strengthen inter-department coordination. Establish coordination mechanisms for the administration over investment projects in the automobile sector, as well as the threshold for auto production. Improve threshold standards for products and industry standards, while making supervision over the industry more effective and efficient. Promote the disclosure and sharing of information about automakers’ credibility, and intensify penalty on automakers violating regulations on investment and production, in line with mechanisms dealing with incentives and punishment in this regard.

Improve industry-wide exit mechanism, and step up efforts to wipe out outdated products and zombie companies. Apply a two-year special administration program meant to name companies that are unable to maintain normal production and operations. 

Carry out supervision responsibilities.

The NDRC and MIIT will carry out special supervision on local performances in managing auto investment projects according to the Administrative Regulations on the Approval and Record-Filing of Enterprise Investment Projects, Notice of the State Council on Promulgating the Projects Subject to Government Approval (2016 Version), AIDP and the Guidelines.

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