New govt sweep clears industry of 'zombies'

Shijiazhuang Shuanghuan Automobile Co displays its pure electric car at an exhibition in 2010. The Ministry of Industry and Information Technology recently stripped 13 passenger vehicle makers, including Shuanghuan Auto, of their production qualifications in an aim to overhaul the auto industry. [Photo/China Daily]

China's recent revocation of some passenger vehicle makers' production qualifications is its latest effort to invigorate its automaking industry, said government officials and industry insiders.

The Ministry of Industry and Information Technology released on its website on Feb 29 a list of 13 makers of passenger cars that have been banned from production because they did not apply for or failed to pass mandatory evaluations for two consecutive years.

Some of them were once famous in China, including Shuanghuan Auto. Based in Hebei province, the automaker was sued for copying the designs of international brands. The 13 carmakers have all long stopped production or gone defunct, according to Chinese reports.

The cleanup of "zombie" automakers, which began in earnest after the MIIT's suspension of 14 automakers' qualifications in November, is one of many steps the central government has taken to overhaul the auto industry.

Carmakers in China, most of them State-owned, were meant to hold lifelong qualifications, a hangover from the country's once planned economic system, before the ministry released plans in July 2012 to establish a system that removes those who cease production and allows new companies to join the sector.

The move encourages troubled companies to undergo upgrades or seek mergers, said MIIT Minister Miao Wei at a news conference in November.

"We have been the largest car-producing country and the largest car market for several years but our auto industry is far from strong."

Wang Liusheng, an auto analyst at China Merchants Securities, said the revocations will improve the sector as inefficiencies are removed. He added that removing outdated, excessive capacity is part of China's reforms to cut down on oversupply.

Zhang Zhiyong, a Beijing-based independent auto analyst, believes the move will facilitate mergers and acquisitions within the country.

"Some of those automakers once asked exorbitant prices because they held qualifications. It will not happen again now that their qualifications are revoked. In a sense, their withdrawal is helpful to the rational use of resources and growth of Chinese brands."

New forces

Experts believe that what is equally important, if not more important, is to allow new members to join the sector.

"If the government does not open the door for new forces to come in, it is hopeless that China will have a strong auto industry," said Fu Yuwu, president of the Society of Automotive Engineers of China at a recent forum held by ifeng.com on building a powerful auto industry.

In recent years, China has not granted any new carmaking qualifications.

"I would like to quote Liu Shijin, former vice-director of the Development Research Center of the State Council, who said that 'the history of applying for qualifications is a history of tears'," said Fu.