Foreign investment is indispensable for the country's auto industry, which is short of funds and weak in product development, to survive global competition after the country's accession to the World Trade Organization (WTO), said Jia Xingguang, a senior expert with the China National Automotive Industry Consulting and Development Corp.

"The auto sector must use more foreign investment and follow development technology to sharpen its competitive edge within the buffer period after the country's WTO accession," he said.

China will reduce its tariffs on auto imports from between 80 per cent and 100 per cent level to 25 per cent by mid-2006. Foreign automakers will be free to choose models and types when producing automobiles in China.

Jia urged the government to further remove restrictions against foreign investment instead of "koshering its auto sector."

"The vulnerable auto industry has no ability to compete with global automakers dependent on itself," Jia said.

Under the central government's "umbrella," the auto industry has fallen behind the world's levels.

"Foreign investment has played a decisive role in what the auto industry has achieved, especially in sedan development, since the country's opening up," Jia said.

Statistics from the State Administration of Machine-Building Industry showed that the industry has actually attracted a total foreign investment of more than US$5.2 billion in more than 600 joint ventures from 1981 to 1998.

The country's annual auto output surged to 1.83 million last year from 150,000 units in 1978. Joint ventures took the lion's share of more than 570,000 sedans manufactured last year.

"The auto industry has benefited significantly from foreign investment in upgrading its product development capability," said Yang Hua, director of the administration's development and planning department.

During the country's 10th Five-Year Plan (2001-2005), the sector aims to establish its independent product development capability, Yang said.

To fulfil the target, the industry will intensify its efforts in absorbing more foreign technologies in its own product development when using foreign investment during the period, Yang said.

"In addition to setting up more joint ventures, the industry will explore more channels to attract foreign investment, such as issuing shares and bonds," Yang said.

Foreign companies will be particularly encouraged to invest in the component segment, which is more vulnerable than the auto industry when facing WTO challenges, Yang said.

"A robust component segment will lay a sound foundation not only for promoting our auto development capability but for our engagement in the global market in advance," Jia said.

Investment in the component segment accounted for less than one-third of the total investment in the country's auto industry from 1981 to 1995.

Eying the tremendous potential of the Chinese market, global automakers are struggling for a bigger presence in the country's auto industry.

Volkswagen will add an investment of more than US$1.5 billion in coming years.

(China Daily)