Domestic drive

By Liang Fei Source:Global Times Published: 2013-3-26 23:38:01


A Hongqi H7 on display at Guangzhou auto show in November 2012 Photo: CFP
A Hongqi H7 on display at Guangzhou auto show in November 2012 Photo: CFP

Hongqi (meaning Red Flag), China's oldest and most famous auto brand, has been given a new lease of life, following reports that the brand is expected to get more orders from the government this year.

Founded in 1958, Hongqi was China's first homegrown auto brand. It was originally designed for Chinese top leaders and foreign dignitaries, such as Mao Zedong and US President Richard Nixon, but over time the brand lost its appeal for government officials, who nowadays prefer luxury foreign brands like Audi.

But Hongqi is expected to see a rise in sales to the government this year, as some of China's top officials have expressed a wish to increase the use of domestic brands by government staff.

An official surnamed Fan at Jilin-based FAW Group, the producer of Hongqi cars, said on March 20 that FAW is now in talks with more than 10 provincial governments over possible procurement orders., the news portal under China News Service, said Monday that FAW has already sold 500 Hongqi H7 cars to the government market, and the car will hit the consumer market later this year.

Government splash

With a boost from increased government orders, experts noted that China's homegrown auto brands may gain a bigger share of the domestic market this year, at least in the government market.

"Domestic auto companies that are able to produce middle- and high-end vehicles, such as FAW, SAIC and GAC Group, will benefit from the government's recent efforts to boost homemade car use by government officials," said Zhang Yu, managing director of Shanghai-based industry research firm Automotive Foresight.

President Xi Jinping noted in a speech in December that the government should gradually shift to homegrown car brands when conducting procurement and that it is not appropriate for officials to use foreign cars, the 21st Century Business Herald newspaper reported on March 13.

Xi also noted at a plenary meeting of the CPC's Central Commission for Discipline Inspection in January that all Party organs and members should be frugal and make efforts to oppose ostentation and reject hedonism and extravagance.

Xi's remarks have been generally considered as a signal that the government will buy more cheaper domestic cars in the future.

"The government has tried for a very long time to boost domestic cars in government procurement … and I think this time it is more likely to be successful," Zhang said.

In other countries, homegrown brands account for a large proportion of government procurement. The US police force uses only Ford cars, and most German officials use Mercedes-Benz as their official vehicles, according to a report by Legal Mirror newspaper on March 19.

However, in China the market is still dominated by foreign brands such as Audi. Around 10 percent of Audi's sales in China are from government procurement, analysts said.

In February 2012, the Ministry of Industry and Information Technology released a list of approved auto brands, requiring all government departments to use domestically made vehicles instead of foreign brands when making new procurements.

Recent media reports said that a revised version of the list is coming soon, which will lower the standard for official cars, requiring them to have an engine capacity lower than 1.8 liters and a price below 160,000 yuan ($25,760). The revised list will also stipulate that homegrown brands must account for at least 50 percent of government procurement.

"Most domestic automakers, such as FAW and SAIC, are capable of producing cars suitable for government use now. But back in the 1990s, Hongqi was the only suitable homegrown auto brand," said Zhang, who also noted that besides better quality and comfort, lack of choice was also a reason for Chinese officials choosing foreign brands in the past.

Some of the country's top leaders have already begun to use domestic car brands. On March 7, Minister of Science and Technology Wan Gang drove a BYD E6 electric car to attend the two sessions.

Local governments also released policies recently to increase the procurement of domestic cars. In January, seven provincial governments, including Anhui, Hunan and Gansu, announced that they would gradually shift toward domestic car brands in government procurement, media reports said.

A bigger share?

Besides the Hongqi brand, the Roewe car produced by SAIC and Trumpchi from GAC Group are also competitive in the government market, said Zhang. During the two sessions this year, SAIC provided 100 Roewe 950 cars for the media.

Other automakers who currently do not have a significant share of the government market are also eyeing the potential of the sector. Hubei-based Dongfeng Motor is at present developing a high-end model tailored for official use, and the model is expected to be launched in 2015.

In the first two months this year, a total of 1.22 million domestically produced passenger cars were sold in China, accounting for 43.18 percent of the total market, up by 0.46 percentage points from the same period of 2012, according to data from the China Association of Automotive Manufacturers (CAAM).

"Though government procurement represents a very small percentage of the overall market, sales of homemade car brands can still be greatly boosted, as ordinary consumers will be impressed if they are used by officials," said Zhang.

Some analysts said that there is potential for homegrown auto brands to gain a share of the market for military-use vehicles as well.

However, Dong Yang, secretary-general of the CAAM, told reporters at a conference on March 11 that government procurement only accounts for around 2 percent of the total auto market in China.

"The government has also proposed frugality in vehicle procurement, which may reduce the total number of units bought," said independent auto analyst Jia Xinguang, who also noted that domestic automakers should not focus too much on the government market, as the consumer market is much larger.


Posted in: Insight

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