China’s Government Purchase Rules: A Sweet Deal for Domestics?

Jenny Gu

Earlier this year, China’s Ministry of Industry and Information Technology (MIIT) released its list of approved vehicles for government purchase. The list caused quite a stir because all 412 models included are from China’s domestic brands. International media have been critical of the list, and some have even said it violated WTO principles. Jenny Gu, senior analyst with LMC Automotive,* which has a strategic alliance with J.D. Power, points out that the policy is in line with public opinion in China, and does not violate WTO principles.

A few excerpts from Ms. Gu’s perspective in a recent issue of China Automotive Monthly—Market Trends about the reality and ramifications of the new policy are highlighted:

“This policy is in line with public opinion, whereby government purchases require greater scrutiny and more cost controls. After all, it seems unreasonable to use taxpayers’ money to buy luxury cars for a small group of public officials. However, to become a supplier of official vehicles in China, a company does not need to be a Chinese brand, but the three conditions are difficult for foreign brands to meet:

• Vehicles sold for official purposes, such as tax collection or criminal investigation, must have an engine size of 1.8 liters or below.

• These vehicles must cost no more than 180,000 yuan (US $28,571).

• The manufacturer must have spent no less than 3% of their core revenue on research and development in China in the past two years.

“The first two conditions block luxury brands such as Audi and BMW, which typically have large engine-displacement, expensive vehicles. However, it is the third condition that all foreign brands struggle to meet. Continue reading ›