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Global carmakers get a break amid US-China trade spat

Beijing repeats pledge to lower car import tariffs; stocks of local makers slump as a result

Audi China president Joachim Wedler presenting an Audi Q8 concept in Guangzhou. Luxury sales leader Audi, part of Volkswagen, has been making cars in the country since 1996. High-end models benefit most from cuts to the current 25 per cent import tariff as less of the production is in China.


GLOBAL carmakers from BMW to Toyota got some good news from China after President Xi Jinping reiterated a pledge to reduce import tariffs on vehicles this year, heeding decades-long pleas from companies seeking better access to the world's biggest auto market.

China will "significantly lower car import tariffs" and "sincerely hopes to boost imports", Mr Xi said in a speech at the Boao Forum in Hainan on Tuesday. He also reiterated plans to loosen foreign ownership limits for car ventures and said the government will try to roll out the policies as early as possible.

However, he did not offer details.

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Shares of local carmakers BAIC Motor, BYD and Guangzhou Automobile Group all slumped after the speech as lowering the current 25 per cent import tariff would allow foreign carmakers to bring in more vehicles without being disadvantaged.

Mr Xi's move to open up the car market comes amid a tit-for-tat trade war with the world's largest economy, in which China last week proposed an additional 25 per cent import tax on vehicles made in the US.

High-end autos, in particular, will feel the effects of a tariff cut, as less of their production has moved locally. Toyota's Lexus, in particular, stands to benefit as the only premium marque that doesn't manufacture in China or hasn't announced plans to do so.

"This is a boon for the Chinese luxury auto market," said Steve Man, a Bloomberg Intelligence analyst in Hong Kong.

Luxury sales leader Audi, part of Volkswagen, has been making cars in the country since 1996. General Motors' Cadillac, which has relegated Lexus to fifth in the luxury-car rankings, opened a factory in Shanghai in 2016.

China imported 1.22 million vehicles last year, or about 4.2 per cent of the country's total sales of about 28.9 million automobiles.

Mr Xi was reiterating a pledge by Chinese leaders to open up the nation's auto sector. At the annual gathering of China's National People's Congress last month, Premier Li Keqiang said the nation will cut tariffs on imported cars this year.

Besides the tariffs, China requires overseas automakers to form joint ventures with local manufacturers in which the foreign companies' stakes are capped at 50 per cent.

The government's aim when introducing the policy in the 1990s was for its then-fledgling auto industry to benefit from technology transfer by operating with global giants including Volkswagen and GM.

Honda, which produces cars locally at two joint ventures, welcomes China's promise to open up its market, spokesman Teruhiko Tatebe said.

Peter Fleet, Asia chief of Ford Motor, said early signs were "very encouraging".

Any tariff cut could have a "pretty big" impact on local manufacturers, while relaxation of joint-venture rules may have a long-term effect on the Chinese auto industry, said Cui Dongshu, secretary-general of China's Passenger Car Association.

Shares of BAIC, a local partner of Daimler and Hyundai, led the declines among carmakers falling as much as 10.8 per cent in Hong Kong trading, the biggest intra-day drop since September 2016. BLOOMBERG

READ MORE: Xi seeks to ease trade tensions, vows to open up China economy