Chinese cars running on WTO road Part 1 – Regulations

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On 11th Dec, 2001, after 19 years of efforts, China became the 143th member of the World Trade Organization, this was a great turning point for the Chinese automotive industry. Chinese automotive market began to be opened up step by step, according to WTO’s regulations.

The car import tariff in China was very high. It reached its peak in 1986 to 1993, which was an astonishing 180%-220%. Even in 2001, before China joined the WTO, it still was 70%-80%. From 2002, Chinese car tariff dropped year by year, it hits its lowest point of 25% in 2006. Thanks to the lower import tariff, Chinese consumers can buy many imported family cars with reasonable prices today, such as Mazda 3, Jeep Patriot, Mitsubishi Outlander – they are just around 10% more expensive than their domestically produced rivals. As for the components’ import tariffs, they dropped from 28% (2001) to 10% on average.

The import quotas have been forgotten by many people, but their disappearance was really a big event in China. In 2001, the import quotas for automotive industry were 6 billion US dollars, including 4 billion for completed cars and 2 billion for components, which means only about 100,000 cars can be imported no matter how many consumers there were. From 2002, the quotas increased 15% every year and finally disappeared in 2005.

WTO also made it a rule that government can neither require the localization rate nor compel technical import. This rule is made to protect foreign-invested enterprises.

However, China is not Brazil or Mexico. Conceding the market to foreign brands, Chinese government really wants to acquire core technology, which is referred to the ‘market for technology’ swap. China has many ideas to urge foreign companies to hand over their technology. For instance, before Volkswagen agreed to make electric cars with a local brand, it was not permitted to build new factories in North China.

The WTO regulations made Chinese automotive industry more open indeed, but we cannot neglect the game between government and foreign companies. Government wants local industry becomes stronger, but the foreigners would rather see them perpetually weak.