PLA procurement to lift domestic car brands

A Hongqi H7 car is on display at an auto show in Beijing. FAW Car Co Ltd, maker of the Hongqi H7 cars, has delivered more than 1,000 vehicles to the military for official use so far this month. CHINA DAILY

The removal of foreign automobile brands from the People's Liberation Army's procurement list may substantially help out Chinese vehicle producers, analysts said.

According to the PLA Daily's report on Monday, FAW Car Co Ltd has delivered more than 1,000 Hongqi H7 sedans, also known as Red Flags, to the PLA General Armament Department for official use so far this month, replacing the Audi, Passat and Santana cars made by local joint ventures with German brands.

The move followed the military's procurement of Trumpchi GA5 models, developed by GAC Motor Co Ltd, as well as the Besturn B90, made by FAW Car Co Ltd, earlier this year.

The report also said that the military department has invited only FAW Car, GAC Motor, SAIC Group, Brilliance Auto Group Co and BAIC Motor Co to bid for the official vehicles procurement.

Cheng Guhui, an official with the department, was quoted as saying that "choosing self-developed automobiles is a strict but basic standard in military vehicle reform".

Analysts said that the military's purchase of more than 1,000 Hongqi H7 sedans, which was launched last May with a price tag of from 299,800 to 479,800 yuan ($48,000-$77,000), would give a big boost to FAW's revival plans for the iconic Hongqi brand.

Company statistics showed that FAW delivered no more than 3,000 Hongqi sedans last year.

Cao He, an auto analyst with China Minzu Securities Co Ltd, said the military procurement's focus on homegrown brands will definitely benefit local automakers, especially listed ones.

"The procurement may only add a few sales, compared with the big consumer market. But the favored policy will support investor confidence," he said. "And the change clearly shows the government's determination to support domestic automakers."

Jia Xinguang, an independent auto analyst based in Beijing, agreed. "The reform will not have a major impact on the total sales of passenger vehicles but will be a boon for the national brands."

Analysts said the practice of removing foreign brands from the procurement list may spread to more Party and government offices.

Jia also said the moves will spark a trend among joint ventures to develop more local brands.

"It will give struggling homegrown brands confidence to further develop amid competition from foreign rivals," Jia said.

Auto analyst Zhang Zhiyong told China Daily that moves like Hongqi's replacing Audi in both military and official fleets will help Chinese brands to compete in the high-end passenger vehicle segment.

China Association of Automobile Manufacturers data show that the combined market share of China's homegrown automobile brands has been declining for seven months.

In the first quarter, homegrown brands' market share dropped 4.54 percentage points year-on-year to 38.72 percent in the passenger vehicle market, and fell 6.23 percentage points in the sedan segment.

And while German, US and Japanese automakers enjoyed a more than 20 percent annual growth, domestic producers' total sales in the first three months in the passenger vehicle sector dipped 1.46 percent year-on-year.