China Intends to Reform the Supervision System of the Automobile Manufacturing Industry and Further Expand the Open Up of Foreign Investments


By Audrey Luo / Ariana Tao

 

The Ministry of Industry and Information Technology of China (“MIIT”) issued the Administrative Measures for Market Access Permission for Road Motor Vehicle Manufacturers and Products (Draft for Comments) (the “Measures”) on April 18, 2018, under which MIIT intends to unify and refine the provisions on application, acceptance, examination, decision, supervision, inspection, legal responsibility, etc. in respect of market access permission for vehicle manufacturers and their vehicle products. The period for the public to submit their comments and opinions will last for one month from the date of promulgation.

 

Simplified Vehicle Categories

 

The current laws and regulations classify road motor vehicles into nineteen categories, including eight types of vehicles for special purposes, four types of commercial vehicles, two types of passenger vehicles, four types of motorcycles and one type of low-speed vehicle. The Measures intends to simplify the road motor vehicles into six major categories including passenger vehicles, freight vehicles, passenger carriages, vehicles for special purposes, motorcycles and trailers, and there will be no subcategory of each major category. As a result, vehicle manufacturers will not be required to apply multiple permissions for different subcategories under the same major category.

 

Family Management of Vehicle Products

 

The Measures intends to adopt family management system, which means vehicle manufacturers do not need to repeatedly apply for the public announcement of market access for vehicle products of different types in the same family that have been approved and confirmed by the China Vehicle Technology Service Center (the “CVTSC”). MIIT predicts that implementation of the family management system would lead to reduction of the number of vehicle products types by about one-third or more. In addition, MIIT also indicates that qualified members within the same group can share the relevant resources in research and development, manufacture, sales and after-sales services, and will face simplified requirements when applying for market access permission. If one member has obtained permission for a certain vehicle product, the other members of the same group will not be required to obtain market access permission for such vehicle product and can manufacture such vehicle product under commission of the relevant member as long as they have obtained market access permissions for vehicle products under the same category of such vehicle product.

 

Market Access of Innovative Technology Products

 

There is no specific rule on market access permission of innovative technology products (such as intelligent network vehicles, unmanned vehicles, etc.) under the current laws and regulations, which has caused certain difficulties for relevant manufacturers in obtaining market access permission from MIIT. Although the Measures does not clearly stipulate access requirements of innovative technology products (such as intelligent network vehicles, unmanned vehicles, etc.), it encourages vehicle manufacturers to carry out technological innovations. When the vehicle manufacturers or their vehicle products cannot meet the existing requirements under the Measures due to new technologies, processes, materials, etc., MIIT will review the relevant access application on a case-by-case basis and take into consideration of various factors including regulatory needs and experts’ opinions on the assessment results of performance of product safety, environmental protection, energy conservation, and theft prevention, etc., to determine whether to grant market access permission or not. Given that Beijing and Shanghai have announced regulations on the road test of unmanned vehicles or intelligent networked vehicles in December 2017 and March 2018 respectively, and MIIT, together with the Ministry of Public Security and the Ministry of Transport, issued the Criteria on the Road Test Management of Intelligent Network Vehicles (For Trial Implementation) which apply nationwide at the beginning of this month, it is expected that the specific rules of market access permission for unmanned vehicles or intelligent networked vehicles will be issued in the near future.

 

Special Public Announcement System for Dormant Enterprises

 

Since 2012, MIIT has adopted a special public announcement system to retreat dormant vehicle manufacturers. Authorized by MIIT, CVTSC has so far published two special public announcements listing automobile and motorcycle manufacturers that failed to maintain normal production and operation for two consecutive years, and CVTSC intends to submit the third list to MIIT. The Measures reconfirms the special public announcement system for dormant vehicle manufacturers. MIIT will continue to make special public announcements of vehicle manufacturers that have obtained market access qualifications but failed to maintain normal production and operation, and give them a certain period to rectify in order to meet the requirements of market access permission again. Vehicle manufacturers which are listed on the special announcement will be excluded in the public announcement and will not be permitted for detail alteration of their existing permission. As to vehicle manufacturers which fall into the situations in the following table that cannot maintain normal production and operation, and MIIT will adjust their relevant production capacities based on the level of development of Chinese auto industry.

 

Categories

Production Capacity

passenger vehicles

average annual output less than 2000 units for two consecutive years

freight vehicles (including general transport vehicles)

average annual output less than 1000 units for two consecutive years

passenger carriages

light-duty passenger carriages output less than 1,000 units for two consecutive years and large-duty and medium-duty passenger carriages output less than 1,00 units for two consecutive years

trailers

average annual output less than 100 units for two consecutive years

motorcycles

average annual output less than 5000 units for two consecutive years

Vehicles Testing

 

According to the current laws and regulations, vehicle products can only be approved and inspected by CVTSC. It usually takes six months or more to complete the testing procedures for one vehicle product. The measures intends to open the vehicles testing market step by step. Vehicle manufacturers may choose any of the competent testing institutions which are approved by the product quality authority of the State Council based on vehicle manufacturers’ own needs and at their discretion. Upon obtaining test report, vehicle manufacturers shall submit product data and relevant inspection reports to MIIT in one go, which would lead to a shorter timeframe of obtaining the approval. For the parts and components of vehicle products that are under the Chinese compulsory certification system (the “3C certification”), the test report can be replaced directly with the 3C certification result. Moreover, the Measures also encourages the vehicle manufacturing groups to conduct pilot system of self-inspection over their own products.

 

Management Rules of Vehicle in Subcategories to Be Unified

 

At present, there are certain existing management rules for vehicles in subcategories such as passenger vehicles, new energy vehicles, commercial vehicles, motorcycles and special school buses; however, the Measures only intends to abolish the Administrative Measures for the Access of Motorcycle Manufacture issued by the former State Economic and Trade Commission on November 30, 2002. We notice that there are discrepancies between the relevant existing management rules for vehicles in subcategories and the Measures. For example, according to the current management rules in respect of passenger vehicles, change of basic information or capability conditions of vehicle manufacturers shall be approved by MIIT, while the Measures intends to implement a records management system on changes of non-technical permission details (such as legal representatives, company names, registered addresses, product trademarks, or controlling shareholders, etc.). With respect to new energy vehicles, MIIT will make special public announcement on new energy vehicles manufacturers that have ceased to produce new energy vehicles for twelve months or longer , while the Measures intends to limit the conditions for special public announcement to the average annual production capacities for two consecutive years falling below the relevant standards. Therefore, if the management rules for vehicles in subcategories were still valid when the Measures is promulgated, the potential discrepancies between the management rules and the Measures may need being unified by MIIT by way of public announcement.

 

New measures for Opening of Automobile Manufacturing Industry to Foreign Investment

 

The Chinese government recently indicated on various occasions that it would phase out the restrictions on foreign investment into the automobile manufacturing industry. According to the current laws and regulations, the manufacturer of complete vehicles and vehicles for special purposes shall be controlled by the Chinese parties, and except for pure electric driven vehicles, a foreign investor is only permitted to establish not more than two joint venture enterprises to manufacture the same category of complete vehicles products (passenger vehicles and commercial vehicles) in China. On April 17, 2018, in the press meeting in respect of new black-list for foreign investment and opening up of the manufacturing industry, the official of the National Development and Reform Commission indicated that the automobile manufacturing industry would be opened step by step on a category basis during a transition period, and upon expiry of the following five-year transition period, the automobile industry will eliminate all restrictions on foreign investment:

 

Timeframe

Restrictions on Foreign Investment

by 2018

no restrictions on foreign-funded shares of  and new energy vehicles enterprises

by 2020

no restrictions on foreign-funded shares of commercial vehicles enterprises

by 2022

no restrictions on foreign-funded shares of passenger vehicles enterprises or limit of number (up to two) of foreign-funded joint venture enterprises



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