China will encourage investment from foreign companies in vehicles manufacturing.
The government is reversing a policy to scrap incentives for technologically advanced foreign carmakers investing in China. From June 10, foreign auto investment will be given preferential treatment, according to a joint statement from the country's National Development and Reform Commission (NDRC) and the Ministry of Commerce.
The policy hopes to increase investment in China's central and western regions, which attracted $19.2bn in overseas funds last year, and comes hot on the heels of weaker-than-expected economic data and a slump in foreign direct investment.
Rapidly expanding carmakers like Volkswagen, which is already heavily invested in the western regions of China, will welcome the news. However, some fear the reversal will only lead to oversupply and make it more difficult for local firms to compete.
Zhang Xin, an analyst at Guotai Junan Securities Co, believes the policy may be misguided. “The change in policy direction is meant to boost foreign investment and economic growth”, said Zhang, “rather than for the need of the auto industry.”
Incentives for foreign carmakers were scrapped less than two years ago, in January 2012, in a bid to increase local companies' market share and preventing excess production.