China targets bureaucrats' car perks

The Wall Street Journal (Beijing) - China issued new rules for vehicles purchased by public servants that require them to spend less and buy more fuel-efficient, smaller-engine vehicles, including electric cars, as it clamps down on growing criticism of extravagant spending.

The new rules, issued jointly earlier this month by the Communist Party and state agencies, come amid rising public anger over corruption. It also comes as China increasingly identifies rising fuel consumption as a public issue on both economic and environmental grounds.

Many Chinese government officials are allowed to purchase vehicles for official use, and a number of officials acquire luxury cars like the Audi A6 and Mercedes-Benz E-Class, and often use chauffeurs on private as well as official business. Car use by public officials—who often aggressively assert themselves on the busy streets of China's crowded cities—feeds into public perceptions of corruption as the central government moves to crack down on offenses such as misuse of public funds.

The new rules lower the maximum amount that "regular," or mid-level, government officials can spend on their cars to 180,000 yuan (about $28,200) from 200,000. They also require officials to buy vehicles with engines smaller than 1.8 liters, according to an announcement posted on the website of the Ministry of Industry and Information Technology. Previously, those officials could purchase cars with engines as big as two liters.

The party and the government also added "new-energy vehicles"—all-electric cars and plug-in electric hybrid cars—to the government's list of cars that meet purchase rules.

It was unclear whether Chinese policy makers also enacted tougher rules for minister-level officials and other senior bureaucrats. According to an earlier draft of new rules seen by foreign auto officials, the maximum senior officials could spend would drop to 380,000 yuan from 450,000, while maximum engine size would drop to 2.5 liters from three liters. The new policy, and state-run media reports Friday, didn't mention those restrictions.

The state-run Xinhua news agency on Friday quoted Ye Qing, a deputy with the National People's Congress, China's legislature, as saying that the new policy is aimed at helping reduce government expenses by discouraging purchases of upper-scale cars while helping to cut emissions. The current budget for official vehicles in China is more than 100 billion yuan in total a year, Xinhua said.

In essence, the new rules mean that mid-level officials who used to be able to buy a lower-end Volkswagen Passat or a Toyota Camry may not be able to do so any more, said a China-based official with a foreign auto maker. They will probably have to settle for a Volkswagen Jetta or a Toyota Corolla instead, the official said.

Others said auto makers like Volkswagen are introducing a version of the Passat with a smaller engine, and that might help officials keep buying upper-scale cars if dealers are willing to give them a discount or through other loopholes.

Yale Zhang, an analyst with consulting firm Automotive Foresight (Shanghai) Co., said he foresees "not much impact" on what cars mid-level officials would buy, including from the "new-energy" car rules.

Some two dozen cities across China are designated as model cities for new-energy cars, and they are likely to buy more Chinese-produced green cars, including the e6 all-electric car from China's BYD Co. and a plug-in hybrid version of the BYD F3, said Mr. Zhang. But supply of those green vehicles is still limited, he added, and they remain impractical for regular day-to-day use. "It would take more time for those purchases to grow," he said.

China hopes to bolster its production of such fuel-efficient vehicles, however. Auto-industry officials expect that new rules set to be released in coming weeks or months will require foreign companies planning to produce and sell new-energy cars in China to hand over technology related to fuel-efficient vehicles.