Published — Monday 29 July 2013
Last update 29 July 2013 11:57 pm
SHANGHAI: Foreign carmakers are reaping exorbitant profits selling imported luxury cars in China and should face an anti-trust investigation, the Xinhua News Agency said, in what may amount to a shot across the bow of foreign auto firms.
Xinhua said the price of imported cars had become a contentious topic following investigations into how foreign companies in other sectors priced their goods.
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 over prices. Volkswagen’s luxury division Audi said vehicle prices in China were comparable to other countries once taxes and other factors were taken into account.
“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 US 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 ($75,000), and who was shocked to see the same car on sale in China for 1 million yuan.
Xinhua 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.
An Audi China spokesman said in an e-mailed statement that allowing for taxes and differing vehicle specifications, prices were comparable.
Tariffs on cars brought into China from abroad are 25 percent for any type of car. On top that there is an additional value-added tax of 17 percent and consumption tax, which depends on the engine size.
“Most of the price differences between some imported models in China and for example Germany result from import duties and taxes in China. In addition, the entry price vehicles in China are usually higher equipped than the base models in Germany,” the Audi statement said.
“If you adjust the prices according to duties, taxes and differences in equipment, price levels in China and other markets like Germany would usually be comparable.”
BMW and Tata could not immediately be reached for comment.
Selling imported cars in China was 30 percent more profitable than the global average, Xinhua said, citing Rao Da, secretary general of the China Passenger Car Association.
Zhang Min, president of the Waigaoqiao car supermarket in Shanghai, was quoted as saying that while the government imposed taxes 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 funneled up to 3 billion yuan ($489 million) to travel agencies to facilitate bribes to doctors and officials.
GSK has said some of its Chinese executives appeared to have broken the law.