Removing quotas and cutting tariffs on imported cars will not lead to a price slump in domestic-made vehicles, says an article in the International Finance News. An excerpt follows:

In accordance with its commitment to the World Trade Organization, China will remove quotas on imports of vehicles and spare parts and slash its tariffs further next year.

Many people believe that after such moves, cheaper, imported cars will flood the country's market, thus leading to a price slump in domestic-made vehicles.

However, officials in charge of the auto industry said the small tariff cuts, good quality of Chinese-made vehicles and a sluggish market in imported cars meant prices would not go down dramatically.

In fact, the price of imported cars is expected to go up a little.

Since China has cut car import tariffs in a step-by-step manner, next year's reduction will not be huge. It will be reduced to 30 percent from the current 34.2 percent on engines lower than three litres and 37.6 percent on larger engines.

On a vehicle of more than 3 litres costing US$20,000, the price difference after the tariff adjustment will be just 8,500 yuan (US$1,024).

Next year, the country will remove the preferential bonded policy for imported cars. As soon as the cars reach China, taxation will be levied. Distributors will invest more funds in imports, increasing their operational costs and risks.

As domestic cars improve in quality, the need for imports is less. Domestic medium-and-low grade vehicles can meet domestic demand. Some top-notch automakers, such as Audi and BMW, have already set up production lines in China. Next year, Mercedes Benz, Crown and Cadillac will also open their factories in China. Some best sellers among imported autos, like Toyota's Camry and Nissan's Cefiro, will be produced in China.

They will still be taxed up to 50 percent, keeping their prices higher than domestic cars. Once they have been made in China, imports will stop.

Each year, only 100,000 autos are imported - which is just 5 percent of total domestic demand. Such a small number cannot have a big influence on the domestic auto market.

Since most imported autos come from Japan and Europe, with the exchange rates of the yen and the euro increasing, an imported car will cost another 10,000 yuan (US$1,200) or 20,000 yuan (US$2,410).

Finally, it is expected the sluggish market for imported cars will not be revitalized next year.

(China Daily December 20, 2004)