Auto Industry

Government car-tel

A new procurement list for official vehicles

Government car-tel

Not red enough for China

For many years, a Red Flag limousine was the height of communist chic. These bulky, but surprisingly elegant, cars are still rolled out at important ceremonies – Chinese leaders from Deng Xiaoping to Hu Jintao have all attended National Day celebrations standing aloft from an open-topped Red Flag.

As a vehicle for the newly rich, however, the Red Flag has not flown so high. When shopping for a luxury car, Chinese businesspeople prefer buying a foreign brand rather than something reminiscent of a bygone communist age. Even government officials – surely the Red Flag’s natural client base – have proven keener on riding in an Audi.

It looked as though the Red Flag brand, which was established by Mao Zedong in 1958, would not survive in the new era of competition – production of the cars stopped in 2010.

But the government looks set to raise the Red Flag once more, due to a recent decision to make the C131 Sedan the official car for ministers, reports the People’s Daily. The company that owns the brand, state-owned First Auto Works, recently green-lighted new production. FAW intends to invest Rmb2 billion ($280 million) on the brand, with 30,000 of the C131s to be produced next year. (The revival of Red Flag has been on the cards for some time: WiC first wrote about it in issue 76).

This is part of a broader drive to give state procurement of cars a more domestic focus. Late last month, the government published a list of cars that can be purchased by officials: not only did it exclude foreign brands, it also left out domestically produced cars made by joint ventures between Chinese and foreign companies.

With foreign companies out of the picture, the list consists entirely of local names. Geely Automobile, Shanghai Automotive Industry Corporation (SAIC), and Jianghuai Automobile (a state-owned firm from Anhui) are all well represented.

Perhaps the biggest beneficiary is Great Wall Motor Company, China’s major manufacturer of SUVs, which has 50 models on the list. Official procurements are expected to lead to an extra 30,000 SUVs sold in 2012, reports 21CN Business Herald, adding at least Rmb500 million to the Chinese firm’s revenues. Great Wall will be taking business from foreign rivals such as Toyota and Mitsubishi.

The move towards domestic procurement could be a major blow to Audi. Analysts believe that the Chinese government annually spends between $13 billion and $16 billion on cars, and an estimated 30% of official cars are Audis, reports Bloomberg (see WiC83 for article on Audi selling its millionth car in China).

But black A8s may no longer be shuttling so many officials through China’s congested streets. The change in the procurement policy comes as the local car industry struggles. In January, the number of cars sold was down 24% year-on-year, the largest monthly drop for more than three years, according to Reuters.

Some say it is only natural for Chinese officials to drive Chinese cars. “State leaders in many countries ride their home-brand vehicles and I think our own officials should do so as well,” Dong Yang, deputy head of the China Association of Automobile Manufacturers, told Bloomberg. It’s a legitimate point.

The South China Morning Post reports that while the EU Chamber of Commerce in China viewed the move as “discriminatory” it would not retaliate and stoke trade tensions.

But it’s too early to start feeling sorry for officials having to give up their foreign luxury cars. For a start, there is some scepticism over whether the new rules will be properly enforced: “Even if a list like this becomes a real policy, it’s unlikely it is going to be enforced aggressively,” an attorney at a foreign car company told the Wall Street Journal. “I have heard it and seen it before.”

And as South Weekend points out, the most senior officials, such as government ministers, can choose cars from outside the procurement list, even foreign cars. Nor is it certain that they will driving around in a Red Flag, since there have already been a number of attempts to revive the brand (three times between 1987 and 1990), none of which have been successful.

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