FAW to get procurement boost

Jilin-based FAW Group, the producer of high-end auto brand Hongqi, is in talks with more than 10 provincial governments in China over possible procurement orders, a company official confirmed with the Global Times Wednesday.

The company secured an order of 13 Hongqi H7 cars from the government of Jilin Province in February, according to an official surnamed Fan at the planning department for the Hongqi (meaning Red Flag) brand.

Fan did not disclose further details of the ongoing talks with other provincial governments.

Following the news, shares in FAW Car Co, the listed arm of the State-owned automaker, surged Wednesday by the daily limit of 10 percent on the Shenzhen Stock Exchange.

Given the central government's recent efforts to boost the use of domestically made cars by local governments and government-funded agencies, experts noted that Chinese brands may gain a bigger share of the market this year, and there is potential for them to gain a share of the market for military-use vehicles as well.

President Xi Jinping said in a speech in December that the government should gradually shift to home-made car brands when conducting procurement and it is not appropriate for officials to use foreign cars, the 21st Century Business Herald newspaper reported on March 13.

In January, seven provincial governments, including Anhui, Hunan and Gansu announced a gradual shift toward domestic car brands in government procurement, media reports said.

"Though government procurement represents a very small percentage of the overall market, sales of homemade car brands can still be greatly boosted, as ordinary consumers may also choose these brands if they gain in popularity among officials," Zhang Yu, managing director of Shanghai-based industry research firm Automotive Foresight, told the Global Times Wednesday.

Vehicle sales in the government market stand at around 600,000 units each year, according to Zhang, compared with more than 15 million in the overall Chinese auto market. But at present, the government market is dominated by foreign car brands like Audi.

The Ministry of Industry and Information Technology released a new list of approved auto brands in February 2012, requiring all government departments to use domestic brand vehicles instead of foreign brands when making new procurements.

Cars made by 23 Chinese companies were listed, including FAW, SAIC Motor, and BYD.

"Domestic auto companies that are able to produce middle- and high-end vehicles, such as FAW, SAIC and GAC Group, will benefit from the government's recent efforts to boost homemade car use by government officials," Zhang noted.

Besides the Hongqi brand, the Roewe car produced by SAIC is also competitive in the government market, Zhang said.

However, Su Hui, deputy director of the auto market division at the China Automobile Dealers Association, said that it will still take a long time for domestic brands to gain a significant share of the government market.

"Though the central government has made it clear several times it wants to promote homemade brands in the government market, the efforts will be in vain without strong enforcement," Su said.