SHANGHAI (Bloomberg) -- China will stop encouraging foreign investment in car manufacturing to allow for "healthy development" of a market that that has seen sales growth plummet to a tenth of last year's pace.
Beijing has reshuffled a list of industrial and technology sectors where it wants to attract foreign investment, downgrading autos and putting more emphasis on emerging fields and domestic companies.
The change ends seven years of benefits for foreign investors including reduced tariffs on imported plant equipment, said Jenny Gu, a senior market analyst at LMC Automotive in Shanghai.
The new rules will go into effect on Jan. 30.
Foreign investment in more fuel-efficient vehicles will still be encouraged, the National Development and Reform Commission and the Ministry of Commerce said in a statement.
China, the world's largest light vehicle market, has attracted billions of dollars in plant investments and research spending from global automakers.
General Motors Co., Volkswagen AG, Toyota Motor Corp. and others have operated in China for years through joint ventures with local partners and automakers.
They have also increasingly relied on China for growth and profits as North American and European markets mature.
"It might be more difficult for carmakers to get approval for new plants in the future unless they have an investment in new-energy vehicles," Gu said.
GM, the biggest overseas automaker in China, downplayed the risks to its expansion plans in the market.
"We expect the new guideline to have minimal negative impact on GM's future plans in China," the U.S. automaker said in a statement. Dayna Hart, a Shanghai-based spokeswoman at GM, didn't elaborate on the statement.
Officials at Volkswagen and Ford Motor Co. declined to comment on how the changes in government policy will affect their business in China and said current investments won't be hurt.
But Ford is "strongly committed" to China, it said in an e-mail.
Daimler AG and Toyota officials didn't immediately respond to requests for comment, while Akihiro Nakanishi, a Guangzhou-based spokesman for Nissan Motor Co., declined to comment.
Some domestics brands struggle
Although foreign companies are required to partner with a domestic company to manufacture cars in the country, Chinese producers are struggling.
China has more than 70 automakers, but the bottom 55 only account for 11 percent of all vehicle sales, according to the China Association of Automobile Manufacturers.
"VW will work toward fulfilling its expansion plans in China, which include actively developing electric cars and new-energy vehicles, and will continue to bring in fuel-efficient technologies and products," VW said in a statement.
Kevin Wale, GM's China president, said in a Bloomberg Television interview this month that the company plans to boost production capacity by 25 percent to 40 percent over the next two years.
GM said today it expects to remain a "key pillar" of the Chinese automobile industry.
The change in policy appeared to immediately improve the prospects of China's top domestic automakers.
Shares in SAIC Motor Corp., the nation's largest listed automaker, rose 4.1 percent to 13.88 yuan in Shanghai trading on Friday, it's biggest gain in almost two weeks.
The country needs to focus on nurturing strategic new industries to make its manufacturing more sophisticated and be more competitive globally, the National Development and Reform Commission said in the statement.
Vehicle sales in China rose 2.6 percent during the first 11 months of this year, with passenger car sales increasing 5.3 percent to 13.1 million units, according to the China Association of Automobile Manufacturers. China's vehicle sales gained by a record 32 percent in 2010.
The nation's automobile manufacturers association estimated that 2011 deliveries may grow by the least in 13 years as a rollback in policies aimed at encouraging buyers curtailed purchases.
LMC estimates that China's light vehicle capacity, which doesn't include production of minivans and trucks, may grow more than 40 percent to 27 million units annually between 2010 and 2012.
The automobile manufacturers association's category for passenger cars includes minivans.
The decision to continue encouraging investment in new-energy vehicles also comes as the world's largest polluter pushes for more alternative-energy vehicles on its roads.
Wan Gang, China's Science and Technology Minister, said this week that China needs to improve its research and development of electric cars, and should establish standards for car batteries as soon as possible, the Science and Technology Daily reported on Dec. 26.
The government has set a goal of 1 million electric-powered vehicles on the road by 2015, according to the Ministry of Science.