China Readies Rigid Auto Investment Rules for 2019

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Despite spending a fortune supporting burgeoning automotive manufacturers and opening its door to foreign enterprises, China’s state planner has approved strict new regulations on investments within the industry.

Following a handful of draft proposals earlier this year, China’s National Development and Reform Commission (NDRC) announced it will ban new independent businesses that make only traditional combustion engines while continuing to push for more “new energy” vehicles.

The People’s Republic has what some might call a bit of a pollution problem. But it’s also one of the largest and fastest-growing battery producers in the world; state policy aims for the widespread adoption of electric vehicles. Unfortunately, this left China with hundreds of automotive startups that will never become profitable just as the country enters an economic downturn and its first year of negative car-sale growth in decades.

The NDRC’s decision is likely intended to help amalgamate the country’s overgrown and fractured auto sector while simultaneously making it harder for foreign businesses to move in after China “opened up” its market earlier this year. According to Reuters, the new rules should come into effect on January 10th.

From Reuters:

A draft of the policy released earlier this year alarmed some foreign carmakers, who worried Beijing was trying to trigger consolidation of the country’s flabby auto industry through mergers and strategic cooperation.

The regulation puts the tightest restrictions on new capacity in traditional combustion engine cars, but also adds hurdles for companies investing in electric vehicles.

It could, however, open the door to new plant approvals for [new energy vehicle] makers, which have, in effect, been suspended since the middle of last year when the last approval was granted.

The China Association of Automobile Manufacturers (CAAM) predicts flat vehicle sales through 2019 — though some foreign analysts expect a drop akin to what we’ve seen this year. Regardless, CAAM believes the NDRC’s new regulations will help cull the more feeble auto businesses that were allowed to proliferate.

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