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Tuesday, April 20, 2010

Taking local preference rules on the road in China

New procurement rules a win for domestic automakers From:China Daily
As the government prepares revisions to regulations on official car procurement, domestic automakers are preparing to grab more market share from foreign joint venture manufacturers.

The new regulation, slated to be launched in June, will mandate that government offices across the country purchase more than 50 percent domestically branded cars for their fleets in the future.

The regulation will also change the guidelines for vehicles to be purchased, basically excluding most brands made by joint ventures.

German luxury car brand Audi's huge success in China should be in part attributed to its almost exclusive control of the nation's high-end official car market since it locally produced its flagship model, the A6, in 1999.

Li Shufu, chairman of Zhejiang Geely, commenting after his company acquired Swedish luxury brand Volvo that he will use Audi's business model in China to foster Volvo's future development here - indicating a new focus on the world's biggest government procurement cake.

"It's something that reflects the consumer philosophy when purchasing vehicles in China. For rich Chinese, they prefer the officials' car models which indicate car owners' prestige and provide them with more psychological satisfaction, and demonstrate the difference between them and ordinary people on the street," said Xiang Hansong, an auto industry watcher.

"As long as the government lowers the purchasing criteria of vehicles, foreign producers will lose interest in bidding," said Xue Xu, professor at the school of economics of Peking University.

"The new regulation will provide domestic brands a golden opportunity to expand and compete with foreign rivals in the world's biggest auto market," said Dong Yang, secretary-general of the China Association of Automobile Manufacturers.

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