Blue Book: auto industry requires structural reform

"A system encouraging innovation should be nurtured, as electronic modules take more and more proportion of a car. When innovative companies are encouraged to enter the industry, they may bring disruptive technology breakthroughs."

Industrial data show that about 10 percent of an average vehicle's price covers electronic components and systems, while a luxury car's complicated electronic parts contributes on average around 15 percent of the price, equivalent to that of the engine.

Fu said: "Some redundant policies overwhelm companies, and it is the government agencies' interests behind the policies. It is tough to change the agencies' interest patterns, but companies' vitality and creativity will vanish if they don't get relief."

Fu used the new-energy vehicle sector as an example, where the swift expansion of the sector has steered investment in the traffic infrastructure and attracted emerging companies and players in other fields into the auto industry.

"In such a situation, unreasonable prerequisites and entry approvals should be eliminated."

Easier entry proposed

Zhang said government agencies overly stress the prerequisites required to enter the industry, rather than adequate supervision afterward.

He said: "Many obstacles are set for companies to conquer before entering the car-making industry, for example, qualifications, certifications, permits. But as long as a company acquires all of these and starts production, its products as sold to customers are ignored and not actively monitored."

One of the prerequisites for a carmaker is the qualification after a series of approvals and registrations that makes its production lawful, but some local permits are also required.

A recent example is the Xindayang Group, which lacks a car manufacturing qualification and has to work with qualified carmakers and utilize their plants. Xindayang joined with Zoyte auto and Geely auto and is now producing micro electric cars in the Zoyte and Geely plants in Gansu province.

Xindayang's three large production bases in Zhejiang and Shandong provinces and Tianjin only make electric motorcycles, electric motors and components, not cars.

"When a qualified company invests in other locations outside its registered base, it may have to spend a huge amount of money to acquire a bankrupt local company shell with local qualifications," said Zhang, referring to one possible workaround.

Liu recommended a "negative list" management approach such as is used in some free trade zones, in which areas or activities not listed are assumed to have no restrictions. The companies should manage production, investment and plants, he said, as they can best make decisions based on their own situations.

"The government should handle the major issues from the macroeconomic perspective, including energy efficiency, environmental protection and work safety," Liu said.