The Chinese government has issued a list of new cars that can be purchased for official purposes and foreign brands such as Daimler AG (DAI)’s Mercedes Benz and Volkswagen AG (VOW)’s Audi have been delisted. The list published by the Ministry of Industry and Information Technology consist of 412 models and all of them are manufactured by local carmakers.
The reasons cited for the change are that government agencies must reduce their spending costs, cut their energy consumption and minimize pollution. Ok, I can understand that local brands could be cheaper. However, I am not sure if they are more fuel efficient and less polluting than the foreign brands which have more established engine technology.
In the name of cost saving, the Chinese government also mandates that vehicles used for official purposes such as tax collection and criminal investigations must cost less than 180,000 yuan (SGD 35,854) and have an engine less than 1.8L in capacity. In addition, the manufacturers must have spent no less than 3 percent of their core revenue on research and development in the past two years.
This move by the Chinese government might be deemed as protectionistic. We know that protectionistic policies may not help to develop local industries. The local industries may become complacent due to healthy local sales and there is less incentive to improvise their products. Perhaps, some competition is good. In 2008, the Malaysian government decided to end its protection of Malaysia's Proton Motors, which included import duties and taxes levied against foreign carmakers. Proton was also the recipient of tax breaks and other government incentives.