Bloomberg News

Volvo Cars Chairman Li Says China Should Lift Foreign Cap (1)

March 04, 2014

Geely Chairman Li Shufu

Li Shufu, chairman of Geely Automobile Holdings Ltd., said China should deepen reforms instead of protecting the interests of a few companies. Photographer: Tomohiro Ohsumi/Bloomberg

Li Shufu, the Chinese billionaire chairman of Volvo Cars, said China should allow foreign carmakers to control their operations in the world’s largest auto market to encourage competition and bring down prices.

“We should let the market decide and form real competition between Chinese companies and foreign companies,” Li, 50, who is also chairman of Volvo Cars’ parent, Zhejiang Geely Holding Group Co., told reporters at a briefing in Beijing yesterday. “The interests of the consumers and the competitiveness of the country are being undermined with the current setup.”

Li’s comments add to the growing debate about the merits of the rule requiring foreign carmakers to set up joint ventures with predominantly state-owned companies to manufacture vehicles in the country. Geely was the first private automaker in China when it started 17 years ago and teamed up with Volvo Cars, which is separate from truckmaker Volvo AB, to manufacture in the country.

A Ministry of Commerce official sparked the debate last year after saying that local automakers should prepare for the day when the foreign stake limit is relaxed. The comments, made during an industry forum discussion, prompted the country’s main auto association to say that Chinese brands would be “killed in the cradle” if foreign automakers are allowed to become more independent from their domestic partners.

Increase Collaboration

The Ministry of Industry and Information Technology, one of the auto industry’s regulators, also weighed in on the subject, saying last month that China’s automakers are still too weak and need to increase collaboration with foreign automakers.

Since China opened up its factory floors to foreigners decades ago, companies from General Motors Co. to Volkswagen AG have poured billions of dollars to build cars in the country, as long as they set up joint ventures and kept their ownership capped at 50 percent. They do this to avoid paying custom duties and other taxes that add more than 25 percent to the cost of importing vehicles.

China FAW Group Corp. and Shanghai’s SAIC Motor (600104) Corp. have joint ventures with Volkswagen and GM, while Dongfeng Motor (489) Corp. and Guangzhou Automobile Group (2238) Co. are partnered with Nissan Motor Co. and Toyota Motor Corp., respectively.

China’s local brands, whose combined sales fell 5.1 percent in January, will see further declines in sales this year because they’re less competitive than foreign brands in terms of quality and service, Dong Yang, secretary general at the China Association of Automobile Manufacturers, said at a Feb. 13 briefing.

Deepening Reforms

Geely’s Li said China should deepen reforms instead of protecting the interests of a few companies.

These state-owned enterprises are also helping foreign brands compete with other Chinese carmakers, which is against the interests of the consumer and broader industry, Li said. The SOEs should team up with private local players to compete with foreign companies instead, he said, emphasizing repeatedly that his proposals were not motivated by self-interest.

China is unlikely to change the rules governing foreign ownership in the auto industry anytime soon, according to Vivien Chan, an analyst with Oriental Patron Financial Group in Hong Kong.

‘Nothing Imminent’

“There has been no confirmation from industry regulators to remove the limit and even if the government is considering it, we won’t see it happening in at least five years or more,” Chan said in a telephone interview. “It is nothing imminent given the complexity of the issue. The government may hold on to it till local players such as Geely, Great Wall and BYD grow strong enough to compete with foreign companies head to head.”

The National Development and Reform Commission, the planning agency that oversees economic policy, said it will forward the faxed request for a response to Li’s comments to the relevant departments.

Li was speaking at a briefing about the proposals he presented yesterday to the Chinese People’s Political Consultative Conference, the advisory body to China’s legislature.

The founder of Geely, which last year bought London black-cab maker Manganese Bronze Holdings Plc, proposed that China should allow free competition in the taxi market, including removing local protectionism to allow taxi operators to choose the brands they want regardless of where they are made.

Li also proposed that Chinese should be taxed by household and that private higher education institutions should be given the same treatment as those run by the state. Last year, he proposed that China should regulate the quality of in-cabin air in passenger vehicles.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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