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NDRC’s antitrust crackdown has little to do with protectionism

Over the last month, the National Development and Reform Commission has launched a slew of antitrust investigations into the pricing practices of foreign automakers.

One might logically conclude that China’s central economic planning agency is doing all this to protect domestic automakers. But this notion is misleading even though the NDRC has used questionable tactics to conduct its investigation.

In fact, the agency’s latest antitrust campaign is more likely to harm Chinese brands than to protect them.

Here’s how.

Under investigation for overcharging customers for spare parts, a number of foreign automakers have scrambled to cut the price of spare parts. And now other foreign automakers are likely to follow suit to avoid an investigation.

That will reduce ownership costs, which is good news for Chinese car buyers. But for domestic Chinese automakers, it’s bad news because it will erode their one key advantage — lower prices.

At first, the NDRC targeted luxury brands such as Mercedes-Benz, Audi, BMW and Jaguar Land Rover. Mercedes promptly cut spare part prices by 15 percent; BMW followed with a 20 percent cut, and Audi is reducing the cost of replacement parts as much as 38 percent.

While domestic Chinese automakers don’t compete against these luxury brands they do try to challenge mass-market brands. Now regulators are targeting automakers like General Motors, Toyota, Honda and Chrysler, which have proved increasingly willing to compete against Chinese automakers — even in low-priced entry-level markets with models priced under $10,000.

This is especially bad news for companies such as BYD, Great Wall, Chery and Geely. Burdened with poor brand images and old technology, Chinese carmakers have survived by offering low prices.

Over the years, some domestic brands – such as Geely and Great Wall — moved upscale as foreign rivals introduced less expensive models to gain market share. Although the price gap has narrowed, it still exists.

Even today, domestic models typically sell for less than 80,000 yuan (about €9,700) while most foreign cars are priced above 100,000 yuan.

That price gap has forced domestic automakers to survive on thinner profit margins

But now the NDRC is forcing foreign brands to cut their spare parts prices. So that price gap will be squeezed, and domestic automakers will suffer for it.