BEIJING (Bloomberg) -- A surprise policy shift in China is expected to give a boost to Volkswagen Group, General Motors Co. and other foreign automakers planning to expand in the world's largest car market.
China said it will encourage foreign investment in vehicle manufacturing in its western region, reversing a policy to remove automaking from a list of industries qualifying for government incentives.
Starting June 10, foreign auto investment will be given preferential treatment, the National Development and Reform Commission said in a statement today, without giving more details.
The policy was among measures taken by the central government to encourage labor-intensive projects in the central and western regions, which attracted $19.2 billion in overseas investment last year, according to the statement.
The announcement follows official figures this week that showed foreign direct investment growth slowed in April, highlighting concern at the outlook for the world's second-biggest economy.
"The change in policy direction is meant to boost foreign investment and economic growth rather than for the need of the auto industry," Zhang Xin, an analyst with Guotai Junan Securities Co. in Beijing, said by telephone. "It could well cause an increase in excess capacity and make it more difficult for local automakers to compete with foreign companies."
Foreign automakers received preferential treatment for seven years on their Chinese plants until Jan. 30, 2011, when the NDRC removed the industry from its list of favored industries for investment to clamp down on overcapacity.
VW and GM are among foreign automakers expanding their production in China to cater to demand in the world's largest vehicle market, estimated by the nation's auto association projects to exceed 20 million units this year.
Volkswagen said Thursday it has begun construction of a new factory in Changsha in southern China, part of its 9.8 billion-euro ($13 billion) investment in the country where is already has 12 car and component production factories.
GM said this month it won regulatory approval to build a Cadillac factory in Shanghai.