China's Automobile Industry to Take the Brunt of Impact of WTO Entry
China's Automobile Industry to Take the Brunt of Impact of WTO Entry
It is widely held that China's automobile industry will be the biggest victim of entry into the WTO. According to research conducted by the State Council Development and Research Centre the changes expected to the automobile industry by the accession to WTO are as follows: 15.1% reduction in output, 14.5% reduction in employment, 105.1% in import and -7.8 percent in export. Although the Sino-US agreement on China's entry into WTO gives a 5-6 year buffer period for the automobile industry, the automobile market in China has still suffered a sharp drop in sales since the beginning of 2000. The sales of cars dropped 30% and the automobile block on the Shenzhen Stock Exchange became bearish. The impact brought about by the entry into the WTO is becoming more and more real.
For a long time, China's car industry has been under the protection of the government in two ways, one, the high tariff rate, and the other, the control on import. The tariff rate for car import was 220% before 1986, and dropped to 150% in 1994, to 100% in 1996 and down to 80%in 1997. The current average tariff rate for motor vehicles is 38.8%. The highest tariff rate for key parts is 50%, and the average tariff rate for 65 complete vehicle projects was 56%, including 80-100% for cars, higher than for cigarette and alcohol. A Buick car sold at US$20,000 in the United States is sold at RMB370,000 in China, (equivalent to about US$40,000. The price for a Honda Accord car in Japan is US$18,000, but RMB298,000 in China (about US36,000). By also covering the tariff rate of auto-related industries such as machinery, iron and steel, rubber and electronics that stand at 10-20%, the effective rate of protection for the automotive industry is as high as 219%.
Besides the high-tariff protection, the import of automobile parts is restricted by non-tariff measures including quotas and license. China adopts a quota and license system for import of automobile products, which account for about 60% of the total in the catalogue of quota products. The price gap between domestically made motor vehicles and foreign ones is narrowing, and the restrictions on import by import quotas are becoming less. However, the tariff rate of non-tariff barriers is still estimated at 10-30% by comparing the prices of imported commodities on the domestic market with the normal tax-involved prices (including tariff, VAT and consumption tax).
It is under such protection that China has formed an automobile industrial system of cars, trucks, buses, special-purpose vehicles and auto parts, and established a group of key enterprises. Its production capacity of motor vehicles is now 3 million a year. The country's total output of motor vehicles was 1.82 million in 1999, ranking ninth in the world, and rose to 1.0196 million in the first half of this year, rising 14.76% over the same period of last year, and the sales topped 993,000 vehicles, up 17.17%. [next page]