Further update on Chinese new automotive policy

On 18 December 2018, the National Development and Reform Commission (“NDRC”) published the official Administrative Regulations on Investment in the Automotive Industry (effective as of 1 January 2019, “Automotive Investment Regulation”). Shortly before, the Ministry of Industry and Information Technology (“MIIT”) released the Administrative Measures for Access of Road Motor Vehicle Manufacturing Enterprises and Products on 27 November 2018 (effective as of 1 June 2019; “Market Entry Measures”). The Automotive Investment Regulation and Market Entry Measures (collectively “New Automotive Policies”) will supersede the current Automotive Industry Development Policy (MIIT and NDRC, as amended on 18 August 2009), corresponding measures and rules (e.g. the catalog of projects subject to government approval, respective market-access administrative rules for passenger vehicles and commercial vehicles, etc.) will also be updated accordingly.

Highlights

Automotive Investment Regulation

Delegation of Project Administrative Power on Project Investment

As of 10 January 2019, the previous project approval requirement for new automotive investment projects will be phased out and instead all new automotive investment projects will be filed with local DRC (while the new investment in OEM shall be filed with DRC at provincial level). It is also provided that DRC at provincial level shall formulate detailed local guidance on project filing of automotive investment projects.

As such the local government in future, while granted with more discretion, will take on more responsibilities to oversee investment activities in automotive industry under supervision of NDRC.

Exceptions to General Restrictions of New Investment in Fuel-based Vehicles Projects

Compared with the draft, the Automotive Investment Regulations introduce a few exceptions to the general restrictions on capacity expansion of existing fuel-based vehicles OEMs e.g.:

• Investment in PHEV production site by existing OEM is not subject to the conditions regarding NEV production volume in the past two years of the existing OEM as well as the capacity utilization of the respective province;
• Capacity expansion through M&A or internal restructure is not subject to the condition regarding capacity utilization of the respective province, provided that the total capacity in the respective province will not increase.

Fine-tuning of requirements for new BEV projects

In this regard, the requirements on capacity utilization and completion of previous BEV OEMs projects become stricter, whilst the requirement on total R&D investment amount is cancelled.

Remanufacturing of Auto Parts

Although only briefly, the remanufacturing of auto parts is introduced in the Automotive Investment Regulation as one key developing field in the future.

Market Entry Measures

MIIT’s separate approval and listing of OEMs and their auto-products (“Listing”) will continue. The Market Entry Measures aim on improving the Listing procedure and strengthening post-supervisions.

Streamlined Listing Procedure

• The re-classification of motor vehicle products into 6 classes (previously 19 classes), i.e. passenger vehicle, truck, bus, special purpose vehicle, motorcycle and trailer (“Class”).
• Listing of new motor vehicle products according to product family instead of product model.
• It is encouraged to centrally administer the Listing within the same OEM corporate group.
• Mere corporate changes (i.e. change of legal representative, company name, registered address, trademark or controlling shareholder) is subject to a filing procedure instead of approval by MIIT.
• OEMs are entitled to choose qualified testing institutes; No repeated testing on auto-parts which are CCC certified in the Listing process.
  

Permission of Sub-Contracting

• Truck OEMs are permitted to subcontract the upper-part assembly process with regard to flat-bed trucks, box trucks, vans and dump trucks.
• Sub-contracting between members within the same OEM group in general is permitted, provided that both members are listed in the same Class.
• R&D enterprises may subcontract and engage OEM production.

Green Path for “New Market Players”

Listing requirements for regular OEM may be partly or totally exempted for “New Market Players” (i.e. those innovative and tech firms reaching out into automotive industry) in individual cases.  

Outlook

While the features of the New Automotive Policies could be extracted as “enhanced thresholds, streamlined administration”, the accompanying implementing rules are yet to be rolled out. With a vast and ever-changing market and regulatory landscape, the automotive players will need to keep up with the pace whether for standing up to the new challenges or for exploring fresh opportunities.