China: government ending subsidies prompts concerned forecasts image

As the Chinese government plans to cut down on the subsidies and stop all together interest-rate controls, Chinese state controlled automakers could see costs mounting.

According to Usha Haley, co-author of “Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy,” the state incentives in the form of direct and indirect subsidies could exceed 30% of the usual industrial output for some auto-parts makers and carmakers.

“BYD would likely be impacted by a rising cost of capital because it relies on debt to finance operations and makes very little money from manufacturing cars,” said Janet Lewis, an auto-industry analyst at Macquarie in Hong Kong. “A long tail of about three dozen small car makers also would be squeezed.”

BYD and other local emerging electric makers might still catch a break as the finance ministry announced earlier this month that the planned subsidy cuts would be reduced for around two years in the case of electric cars, while the government aid is extended beyond the current limit of 2015.

BYD, which in the US is backed by Warren Buffet’s Berkshire Hathaway Inc. plans to attack the North American market with a four model debut at the beginning of 2015.

Via Bloomberg