China Cracks Down On Foreign Auto Players

The Chinese government’s crackdown on industry monopoly has been fueling feelings of unease in boardrooms across the world, which busine...

The Chinese government’s crackdown on industry monopoly has been fueling feelings of unease in boardrooms across the world, which businesses have dealings in China. Brandishing the 2008 anti-monopoly law, China's anti-trust regulator, the National Development and Reform Commission (NDRC), has been swooping down on companies in the technology, pharmaceutical and milk powder industries, and in particular, the auto industry.

Major automotive players like Audi, Chrysler and Mercedes, and 12 Japanese automotive companies have already been scrutinised. In the wake of the investigations, these three automakers as well as Tata, Jaguar Land Rover, Toyota and Honda reduced vehicles and spare parts prices by up to 40%. The authorities has not disclosed the detailed findings of their investigations, but stated that Audi and Chrysler will be “punished” for monopolistic practices, which led to unnecessarily inflated vehicles and auto parts prices. The NDRC said that the automakers’ prices were unjustified, which were up to three times the price in the US, even after taking into account import tariffs and other related costs.

Audi, which operates in China through the FAW-Volkwagen joint venture, has said that it will accept the penalty, the amount of which has yet to be officially confirmed; the law allows the regulators to impose fines of between one to 10% of the company’s revenue from the year prior. The 21st Century Business Herald has reported that Audi will be fined US$40.6 million, but was citing an undisclosed source.

Toyota has confirmed that the investigations have spread to its luxury brand, Lexus. Toyota spokesman, Naoki Sumino, said that the company is “co-operating fully with the queries from the authorities on Lexus.” Everyone is expecting Nissan’s Infiniti to be next.

Although the anti-monopoly law has been in place since 2008, the energetic and sometimes dramatic enforcement of the law (unannounced arrivals, interrogations, confiscation of servers, and all!) really only began after President Xi Jinping assumed office in 2012 and promoted visions of revitalising patriotism and technological ascendance. A ministry spokesman, Shen Danyang, has stressed that the move is not targeted specifically towards foreign enterprises, but is a measure to establish a fair environment for healthy competition.

Foreign companies and institutions, however, are crying foul that domestic businesses are not being probed and sometimes only the foreign partners of joint ventures are being subjected to investigation; the general belief is that the Chinese government is hiding behind the veil of regulatory measures to get around the country’s free-trade commitments, and encumbering foreign businesses to give local Chinese competitors the advantage. The European Union Chamber of Commerce has received “alarming anecdotal accounts” of intimidation tactics being used on foreign companies across industries, who claim they are being told to yield to investigations, to not bring attorneys to hearings nor involve their governments or chambers of commerce.

Regardless, it is no secret that prices of foreign-branded products are generally higher in China than in other countries, and the move could effectively protect consumers from price gouging. Perhaps the person who gets the last laugh is Elon Musk, who despite misgivings from Tesla Motors stakeholders, was adamant in keeping the price of the Tesla Model S at a minimum in China, which is only 50% more than the price in the States. We wrote about this last February in 50% More Is A Fair Price and we also cautioned that “Perhaps other foreign companies should realise that if you overmilk a cow, it will kick you in the face.” Well…the cow is fed up and kicking, stomping and head-butting now.

Read also: Car Price Disparity



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