China should probe foreign luxury carmakers over prices: Xinhua

China should probe foreign luxury carmakers over prices: Xinhua

Monday, Jul 29, 2013

Reuters

SHANGHAI – Foreign carmakers are reaping exorbitant profits selling imported luxury cars in China and should face an anti-trust investigation, the official Xinhua News Agency said, in what may amount to a shot across the bow of foreign auto firms. Xinhua said that in the wake of investigations into how foreign companies in other sectors price their goods, the question of imported cars had become a contentious topic. Foreign milk formula makers and pharmaceutical companies have come under intense regulatory scrutiny in recent weeks, especially over pricing. Separately, Chinese police have accused British drugmaker GlaxoSmithKline of bribery.Analysts, however, said they did not expect foreign carmakers to become the latest target of China’s focus on prices.

“Milk powder pricing is a more imperative problem, as it’s baby food and concerns … families,” said Yale Zhang, managing director of Automotive Foresight (Shanghai) Co Ltd, a consultancy and industry research firm.

“Luxury cars are different. Some people in China have plenty of money and are indifferent to high pricing.”

China has become a key market for the makers of luxury cars, with 2.7 million expected to be sold each year by 2020, overtaking the United States as the world’s leader in the segment.

The Xinhua report said some imported cars were twice as expensive in China than in overseas markets.

It cited a man surnamed Qu who had bought an Audi Q7 in Canada for 78,000 Canadian dollars, or about 460,000 yuan (S$95,000), and who was shocked to see the same car on sale in China for 1 million yuan.

It also said similar price differences existed between some unspecified Land Rover models made by Jaguar Land Rover as well as the BMW X5. JLR is owned by India’s biggest carmaker by revenue, Tata Motors Ltd.

Xinhua did not make clear where it got the price information it cited. The automakers could not immediately be reached for comment.

“Profiteering”

Selling imported cars in China was 30 per cent more profitable than the global average, Xinhua said, citing Rao Da, secretary general of the China Passenger Car Association.

He added that foreign carmakers exercised monopolies over the sales and service channels of imported cars.

Zhang Min, president of the Waigaoqiao car supermarket in Shanghai, was quoted as saying that while the government imposed a tax on luxury cars, the difference between prices paid in China and overseas amounted to “profiteering”.

Rao later told Reuters he thought it was unlikely the government would investigate the luxury car market.

“Foreign carmakers have chosen to set prices of luxury cars excessively high in China, where the rising ranks of the rich are willing to buy expensive foreign brands to show off their wealth, and where there are no domestic luxury brands to compete with,” Rao said.

He added that opinions voiced in the Xinhua article might be partly driven by the fact that some domestic automakers are envious of the profits earned by foreign luxury brands.

Earlier this month top western milk formula makers Nestle SA, Danone, Mead Johnson Nutrition Co and Abbott Laboratories said they were being investigated by China’s top economic planning agency for possible anti-trust violations.

Chinese authorities are also probing the pricing practices at top local and international drugmakers, including units of GlaxoSmithKline and Merck, while a number of gold shops are also being investigated for price fixing.

GSK is also embroiled in bribery allegations after police detained four of its Chinese executives in connection with accusations the drugmaker funnelled up to 3 billion yuan to travel agencies to facilitate bribes to doctors and officials. GSK has said some of its Chinese executives appeared to have broken the law.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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