China has lots of fun regulations that are expressly designed to benefit Chinese domestic suppliers, automakers and the country's economy as a whole. The most well known Chinese rule of law when it comes to its auto industry is that every foreign manufacturer must be paired with a local one in a joint venture in order to sell cars to the Chinese market. A lesser-known law is the 10-percent tax automakers must pay if they choose to import a car in pieces and have it assembled on Chinese soil. Many automakers have taken advantage of this tax that is far less than the 25-percent tax charged for importing an already assembled vehicle.

China, however, has just raised the tax for importing an unassembled vehicle kit to match the 25-percent tax charged for importing an assembled vehicle. The country is hoping that foreign automakers will now see the fiscal benefits of using local suppliers for parts, though most manufacturers are not willing to lower their quality standards to those of Chinese domestic suppliers, though those suppliers have been improving and will eventually meet the quality standards most automakers demand.

On account of China closing this tax loophole, GM has stopped the assembly of its Royaum sedan, which is based on the Holden Statesman and was imported as an unassembled kit from Australia. Automotive News reports that since 2004 only 4,700 Royaum kits have been shipped to China, so it's not like the vehicle was a big seller anyway. GM will now be importing the vehicle into China since the costs are now similar and redistributing GM Shangai's capacity to a more profitable model.

[Source: Automotive News]

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