China green-lights tougher auto investment rules amid capacity crackdown

Cars are seen following snowfall at a car park in Yantai, Shandong province, China December 11, 2018. Picture taken December 11, 2018. REUTERS/Stringer

SHANGHAI (Reuters) - China’s state planner has approved tougher new regulations on investment in the auto industry, a draft of which had spooked carmakers earlier this year, as it tightens the screws on firms adding manufacturing capacity.

The National Development and Reform Commission (NDRC) also said it would ban the establishment of new independent enterprises that make only traditional combustion engines, amid the country’s a wider push towards new energy vehicles (NEVs).

The new rules, which come into effect from Jan. 10, are part of a drive by Beijing to trim excess capacity in the sector, even as the world’s largest auto market grapples with a protracted slowdown.

A draft of the policy released earlier this year alarmed some foreign carmakers, who worried Beijing was trying to trigger consolidation of the country’s flabby auto industry through mergers and strategic cooperation.

The regulation puts the tightest restrictions on new capacity in traditional combustion engine cars, but also adds hurdles for companies investing in electric vehicles.

It could, however, open the door to new plant approvals for NEV makers, which have, in effect, been suspended since the middle of last year when the last approval was granted.

The NDRC said it would “strictly control” any new production capacity of new fuel vehicles and “explicitly ban” new investment projects for combustion engine vehicles. With NEVs it would promote the sector’s orderly development.

China’s car market is facing its first year of negative sales growth in decades, dragged by weaker consumer sentiment, a slowing economy and a biting trade war with the United States.

The country’s main auto industry body, the China Association of Automobile Manufacturers (CAAM), has forecast vehicle sales will be flat in 2019 after a decline this year. It sees tough conditions pushing weaker players out of the market.

Reporting by Yilei Sun and Adam Jourdan in Shanghai; Editing by Himani Sarkar