Provisions on the Administration of Investments in the Automotive Industry (Mainland China)

Karl Zhang

The National Development and Reform Commission recently deliberated on and adopted the Provisions on the Administration of Investments in the Automotive Industry (hereinafter, the “Provisions”), which will go into effect on January 10, 2019. With the approval of the State Council, new Chinese-foreign joint venture automobile manufacturer projects, new manufacturers of completely electric passenger vehicles (including existing automotive enterprises cross-manufacturing completely electric passenger vehicles) projects and other automotive investment projects approved by the provincial governments in the Catalog of Investment Projects Subject to Government Approval (2016) shall no longer require approvals but simply recordation. The Provisions also provide for the scope of application, classification of investment projects, investment direction, project recordation management, capacity monitoring and early warnings.  The specifics are provided as follows:

1. Scope of application

Pursuant to the Provisions, the automotive investment projects of various market entities in China will all be governed by the Provisions.

2. Classification of investment projects

Pursuant to the Provisions, there are two major categories of automotive investment projects, namely, whole-vehicle investment projects and other investment projects. The whole-vehicle investment projects may be divided based on the motor system used in gasoline vehicles and electric vehicles, as well as by two product categories in passenger vehicles and commercial vehicles.  A gasoline vehicle investment project refers to that for vehicles with combustion-based propulsion (or alternative fuel vehicle), which may be convention gasoline-based vehicle, hybrid vehicle, or plug-in hybrid vehicle project. An electric vehicle investment project refers to that for vehicles using generators to provide motion, which may be completely electric (or extended-range electric vehicle) or fuel cell-based.  Smart vehicle investment projects shall be administered either as gasoline vehicle or electric vehicle investment projects based on the type of propulsion used.  Other investment projects encompass investment projects of automotive engines, traction batteries, fuel cells, automotive bodies, and other automotive parts, special-purpose vehicles, trailers, traction battery recycling, and automotive parts remanufacturing. Automobile investment projects shall be recorded with the corresponding levels of the local development and reform authorities according to their associated categories.  In particular, a whole-vehicle investment project shall be recorded with provincial development and reform authorities, while the other types of automobile investment projects should be recorded with the local development and reform authority.

In addition, the Provisions contain different access requirements for the different types of automotive investment projects. For example, no new independent gasoline automobile manufacturer may be established (unless its products will not be sold in China), and the provinces for new independent electric vehicle manufacturer investment projects (including the development of electric vehicle production capability by existing automobile manufacturers for both passenger vehicles and commercial vehicles) shall meet the following conditions: (1) the automobile production capacity utilization rate in each of the previous two years is higher than the industry average for the same product category; and (2) the existing new independent electric vehicle manufacturer investment projects in the same product category have been completed with annual production volume meeting the development scale requirement.

3. Investment direction

With respect to investment direction, the Provisions point out that it is important to optimize the deployment of production capacity for gasoline vehicles.  Push the industry for better utilization of its production capacity, and develop a sound foundation, supporting system and clear competitive advantages. The Provisions also state the necessity to concentrate on key development areas of the automotive industry and accelerate the research, development and industrialization of new energy vehicles, smart vehicles, energy efficient vehicles and key parts and components, advanced manufacturing equipment, technologies for recycling and utilization of traction batteries, and technologies and equipment for the re-manufacturing of key automotive parts and components.  In addition, it is necessary to promote the opening of the parts and components supply system for car makers and allow each to play to their respective advantages for jointly building a platform-based and specialized parts and components enterprise groups that are globally competitive.

4. Recordation administration of projects

With respect to the recordation administration of projects, the Provisions point out that information about automotive investment projects submitted by enterprises shall include the following contents: (1) basic information, such as the legal person and shareholder composition; (2) status of the pending project, including project name, total investment amount, construction site, development scale, development details, etc.; (3) explanation about the project’s compliance with the Provisions; (4) a statement that the project complies with the relevant laws and regulations; and (5) other information to be submitted under the relevant requirements.

Meanwhile, the Provisions require project legal persons to make a project declaration through the National Online Approval and Supervision Platform for Investment Projects, apply for and obtain a unique project code, truthfully report basic information about the commencement of the project development, its progress, completion, etc., and assume responsibilities for the authenticity, legality and integrity of the project information.

5. Capacity monitoring and early warnings

To promote a reasonable progression of investment in the automotive industry, the Provisions put forward mechanisms for capacity monitoring and early warnings. Whole-vehicle and key parts and components manufacturers are required to report the production volume of relevant products, the established capacity, and the status of capacity under development and planned capacity for the previous year to the provincial development and reform authorities by the end of January with a copy to the National Development and Reform Commission; and the provincial development and reform authorities shall timely be informed of the status the local production of relevant automotive products and capacity changes and shall submit a report on the annual local production and capacity for the previous year to the National Development and Reform Commission by the end of March every year.  Meanwhile, the Provisions indicate that the National Development and Reform Commission shall set up work mechanisms for auditing car production capacity and information disclosure so that changes to car production capacity may be timely announced, strengthen early warnings in production capacity, guide enterprises to make reasonable investments and provide services for the administration of local automotive investment projects.  The provincial development and reform authorities are required to improve the development of the local automotive capacity audit system, determine the status of changes in capacity utilization, enhance guidance and supervision of enterprises, effectively cope with and timely resolve overcapacity risks, and continuously increase the capacity utilization level.

In general, the Provisions primarily seek to improve the access standards for investment projects in the automotive industry, strengthen ex post supervision, regulate the investment behavior of market entities, guide the reasonable investment of social capital, strictly control the production capacity of new gasoline-based vehicles, actively promote the healthy and orderly development of new energy vehicles, and spare no effort in establishing an innovative development system for smart vehicles. In case of specific regulations under special administrative measures for foreign investor access, those regulations shall govern.  All newly-established independent electric vehicle manufacturer investment projects officially accepted before the new energy automotive enterprise cleanup regulations shall be handled by the provincial development and reform authorities pursuant to the original provisions before the Provisions are implemented.  For other relevant documents inconsistent with the Provisions, the Provisions shall control.