US and other auto manufacturers banking on increased car sales in China for 2012 have three reasons to be concerned.

  1. Blistering growth in Chinese auto sales is expected to plunge
  2. China is taking efforts to dampen foreign investment in autos
  3. Trade wars

The Wall Street Journal reports China to Damp Foreign Investment in Auto Sector

China will withdraw its support for foreign capital in the country’s auto-manufacturing sector in an effort to build up its domestic industry, state media reported late Thursday.

The report from the state-run Xinhua news agency didn’t disclose additional details, and it was unclear whether it would impact existing operations by foreign auto makers. U.S. and European auto makers, including General Motors Co. and Volkswagen AG, and Japanese auto makers like Toyota Motor Corp. and Honda Motor Co. have long produced cars in the country through joint ventures with local partners.

Foreign auto makers have played a key role as China has shot up to become the world’s No. 1 auto market. After blistering growth, auto sales this year are expected to grow no more than 3%, which would total 18.6 million vehicles, according to the China Association of Automobile Manufacturers, an industry group.

The report said officials would encourage more foreign investment into environmentally friendly technologies, alternative-fuel cars and other areas with guidelines taking effect Jan. 30. The government will lower foreign restrictions by allowing companies to invest in more sectors and increasing caps on the amount of foreign capital in some areas, the report said.

Clearly China is concerned about growth. So, don’t look for efforts by foreign manufacturers to expand production or build new plants in China to be approved.

Moreover, look for tit-for-tat trade wars to heat up in 2012 as noted in China to Impose Anti-Dumping Duties on GM; “Fair Trade” Idea is Self-Serving Scam; Proposal to Stop “Free Sunlight” Gains Support From Mitt Romney.

Should Mitt Romney win the election, expect global trade to collapse in 2013.

Mike “Mish” Shedlock
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