20 September 2018

Austerity drive a fillip for foreign car brands

It was all just wishful thinking. Investors hoping that the new administration under President Xi Jinping and Premier Li Keqiang would reverse the longstanding dominance of foreign brands among official vehicles now have to take a new look at the road ahead. Rather than ushering in a new era for home brands in government sourcing, Beijing has made it clear that it will downsize its official fleet altogether.

The ruling Communist Party and the State Council, the country’s cabinet, jointly announced plans to phase out “general public service vehicles” other than those for law enforcement and emergencies. The new frugal initiative, if properly applied, could effectively put a cap on the budget for official vehicles.

Under existing provisions, only provincial-level cadres can be assigned cars for their exclusive use. But in reality, most lower-ranking officials can obtain vehicles at public expense in the name of “general public service vehicles.” That explains why the government fleet has grown rapidly over the past decade and reportedly exceeds 12 million cars.

China buys about one million new vehicles for official uses a year. The downsizing move is bound to cut hundreds of thousands of vehicles from government procurement lists, dashing hopes of more public orders for the domestic product.

On the surface, foreign brands and joint-venture labels will be losers too. But they will probably gain from the austerity move, given that Beijing has promised to hand special transport allowances out to the officials to compensate for the vehicle cancellations.

The allowance should subsidize private car purchases by civil servants, suggesting that some demand will spill over from the public sector into the private market. Domestic cars tend to lack the panache desired in official circles and the public subsidy, presumably worth billions of yuan, could largely flow into the foreign luxury car market.

– Contact the writer at [email protected]


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