The Ministry of Economic Affairs' Industrial Development Administration (IDA) published guidelines for recognizing localized supply chain cooperation value ratios for Chinese vehicle models on October 14. Different required localization ratios will apply based on the vehicle's launch date, with the highest requirement exceeding 35%, effective immediately upon release.
Barred Chinese imports begin ripple effect
With the ban on imports from China taking effect on August 1, reports indicate that automotive components imported from China are undergoing stringent scrutiny. Customs authorities have requested importers and customs brokers to clarify usage, provide descriptions in both Chinese and English, and submit a complete list of vehicle parts (hereafter referred to as BOM) along with photographs for comparison and review. By mid-September, it was reported that the IDA required all manufacturers to submit reports related to vehicle localization rates.
An industry insider noted that many domestic automakers are experiencing production capacity reductions due to delays caused by issues with imported Chinese components. Even when documents are submitted correctly, customs requires confirmation from the IDA before releasing the goods. Given the complexity and volume of automotive parts, manufacturers must provide detailed explanations, while relevant government departments need to meticulously verify each submission, consuming considerable time.
"Essentially, all models utilizing Chinese components will hit a wall," they stated, adding that the retroactive nature of the regulations complicates matters further, leaving not only manufacturers but also their associated supply chains in difficult positions.
Recent market dynamics show that companies such as Yulon Motor, CMC, Nan Yang Industries, and Lio Ho have been affected to varying degrees. Overall, responses from most manufacturers indicate an effort to comply with the new regulations.
However, the industry insider mentioned that Honda primarily relies on components imported from Thailand, and thus faces minimal impact. For other firms using Chinese brands, some existing models may require significant adjustments due to the new guidelines, potentially rendering them unviable. Consequently, dealerships are already looking towards future vehicle models.
New localization rate regulations take immediate effect, requiring up to 35% localization
These guidelines specifically target M1 domestic passenger cars and light commercial vehicles, applicable to brands produced through joint ventures between Chinese and international entities, those acquired by Chinese firms, and those manufactured by international brands within China.
The announcement provides clearer calculations for determining the "localization" ratio. According to the guidelines, the total value of components listed in the BOM chart minus the value of imported materials and parts over the total amount of components listed makes up the value ratio of local supply chain cooperation.
In terms of ratio requirements, vehicles that obtained safety certification from the Ministry of Transportation and Communications before 2023 must achieve a localization ratio of over 20% by July 31, 2025, over 30% by July 31, 2026, and exceed 35% after August 1, 2026.
Vehicles certified between January 1 and July 31, 2024, must reach a localization ratio of over 15% by July 31, 2025, over 25% by July 31, 2026, and also exceed 35% after August 1, 2026.
For vehicles obtaining certification after August 1, 2024, the IDA states that a localization ratio of over 15% must be achieved within one year, over 25% within two years, and over 35% thereafter.
To apply for the recognition of localization ratios, applicants must submit several documents, including company and factory registration certificates, a commitment letter regarding the localized supply chain cooperation value ratio, financial audit reports for the last three years, a BOM component list, and supporting evidence, as well as explanations and corroborating materials for the localized supply chain cooperation value ratio.
