ASSESSMENTS

U.S. Tariff Threats Give China All the More Reason to Reform Its Auto Sector

Sep 24, 2018 | 09:00 GMT

A Chinese autoworker is pictured on an SUV production line for the BAIC Motor Corp. on Aug. 29, 2018. China aims to consolidate its automotive sector to make it more competitive. But the road to reform will be long and difficult.

(NICOLAS ASFOURI/AFP/Getty Images)

Highlights

Though their focus on domestic demand will largely insulate China's automakers from increased U.S. auto tariffs, the prospective competition as the country opens its market under pressure from Washington will give Beijing more reason to move forward with restructuring the Chinese auto industry.
To that end, Beijing will take steps to consolidate the sector to strengthen domestic automakers and reduce overcapacity.
Beijing's consolidation campaign, however, will probably face resistance from corporations and local governments concerned with maintaining employment levels.

China's formidable but fragmented auto industry is ripe for a restructuring. As the world's largest auto producer, China now makes more cars than its market can handle. Yet China exports only a tiny fraction of the vehicles it produces. The Chinese National Development and Reform Commission recently proposed a plan to correct overcapacity and promote industrial consolidation. The initiative aims to consolidate the Chinese automotive sector to make it more competitive as the United States pushes for greater access to the domestic market -- and drives automakers elsewhere to look for new export destinations under the threat of increased U.S. tariffs. But the road to reform will be long and difficult....

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