China to cut car import duty to 15 per cent as trade war fears ease

A Tesla Model 3 car is displayed at the Auto China 2018 motor show in Beijing, China, on April 25, 2018. PHOTO: REUTERS

BEIJING (BLOOMBERG) - China will cut the import duty on passenger cars to 15 per cent, boosting car makers such as BMW and Ford Motor, just as the immediate threat of a trade war with the United States recedes.

China's Finance Ministry said on Tuesday (May 22) that the levy will be lowered effective July 1 from the current 25 per cent that has been in place for more than a decade. Bloomberg News had reported last month (April) that China was weighing proposals to reduce the car import levy to 10 per cent or 15 per cent.

A reduction in import duty follows a truce between President Donald Trump's administration and Chinese officials as they seek to defuse tensions and avert an all-out trade war.

While the levy reduction could be claimed in some quarters as a concession to Mr Trump and will be a boon to US carmakers such as Tesla, the move will also end up benefiting European and Asian manufacturers from Daimler to Toyota Motor.

The latest round of tariff easing is part of a flurry of policy announcements in recent months aimed at demonstrating China's commitment to opening the economy - partly in response to the accusations of protectionism leveled by the Trump administration.

Beijing has also pledged to slash ownership limits in the car sector as well as in banking, and last November reduced import tariffs on almost 200 categories of consumer products.

The import duty on car parts will be reduced to 6 per cent, the Finance Ministry said.

China announced on May 18 that it would end its anti-dumping and anti-subsidy investigation into imports of US sorghum, citing public interest. That move, coupled with recent steps including restarting a review of Qualcomm's application to acquire NXP Semiconductors, signal a conciliatory stance from the Chinese side.

Mr Trump retreated from imposing tariffs on billions of dollars worth of Chinese goods because of White House discord over trade strategy and concern about harming negotiations with North Korea, according to people briefed on the administration's deliberations.

Treasury Secretary Steven Mnuchin said on Sunday that the administration's plan to impose tariffs had been suspended, and Mr Trump said on Twitter on Monday that the Chinese had agreed to purchase unspecified amounts of American farm products.

China imported 1.22 million vehicles last year, or about 4.2 per cent of the country's total sales of about 28.9 million cars. At the Boao Forum in April, President Xi Jinping reiterated China's commitment to reduce import tariffs on vehicles.

Of the US$51 billion (S$68 billion) of vehicle imports in 2017, about US$13.5 billion came from North America including sales of models made there by non-US manufacturers such as BMW.

China imported 280,208 vehicles, or 10 per cent of total imported vehicles, from the US last year (2017), according to China's Passenger Car Association, an industry trade body.

A duty cut would typically benefit luxury carmakers or manufacturers, like Tesla, that do not have a local production site. Most carmakers produce mass-market models in China.

For Tesla, a tariff cut will provide a boon until the company manages to set up local production. The Palo Alto, California-based company has been working with Shanghai's government since last year to explore assembling cars in China.

China's announcement by Beijing that it will allow foreign new-energy vehicle makers to fully own auto factories as early as this year removed the primary hurdle in the way of founder and billionaire Elon Musk.

Luxury sales leader Audi, part of Volkswagen, has been making cars in China since 1990s. General Motors' Cadillac, which has relegated Lexus to fifth in the luxury-car rankings, opened a factory in Shanghai in 2016.

High-end cars will feel the effects of a tariff cut because less of their production has moved locally. For example, Toyota's Lexus would benefit as the only premium Japanese marque that does not manufacture in China or has not announced plans to do so.

Foreign carmakers have long pleaded for freer access to China's car market, while its own manufacturers are expanding abroad. In April, China announced a timetable to permit foreign automakers to own more than 50 per cent of local ventures.

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