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China investigates General Motors on monopoly issues

“Shanghai GM’s major models produced in China are priced almost at the same level with the similar models sold in overseas markets,” the company said in a statement

General Motors is being investigated by China’s government on questions regarding monopoly and pricing.

Specifically, regulators are looking at Shanghai GM, which is a joint venture between GM and Shanghai Automotive Industries Corp., and which sells Buicks, Cadillacs and Chevrolets, according to a report from the Motley Fool.

Meanwhile, Shanghai GM has defended its pricing in China. “Shanghai GM’s major models produced in China are priced almost at the same level with the similar models sold in overseas markets,” according to a statement released by the company. “The price of Shanghai GM’s imported products are also priced at a reasonable level, with almost no markups in sales. The average ratio for Cadillac is 330 percent, Buick 284 percent and Chevrolet 265 percent. These are close to or even lower than 300 percent -- the average level in western markets.”

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China is now GM's largest market, even surpassing the United States. GM sold 1.73 million vehicles in China during the first six months of this year, which is a 10.5 percent jump over the same period last year. When it comes to Cadillacs in China, the number sold jumped 72 percent in the first half of this year, compared to the first half of 2013. Looking ahead, there could be increasing success of Cadillac sales in China. McKinsey & Company predicts China will be the top market for luxury cars by 2020. GM speculates it will sell 300,000 Cadillacs in China a year by 2020.

On the other end of the market, SGMW, a SAIC-GM-Wuling joint venture with SAIC Motor and Lizhou Wuling Motors, GM sells $5,000-$10,000 cars, which get up to 40 miles per gallon. SGMW sold 883,724 vehicles in the first half of the year.

In addition, the GM sales volume in China appears to be resilient to the 29 million GM recalls in 2014 due to safety concerns.

Other automakers have also been investigated by Chinese regulators. For instance, Volkswagen's Audi will pay a $40 million fine for violations. Chrysler may also pay penalties, and Daimler's Mercedes-Benz offices were searched by authorities. Toyota's Lexus may also be investigated.

The inquiries come after concerns about price gouging, yet more skeptical observers say China is taking these steps to benefit its own local auto companies.

When it comes to foreign cars, China charges a 25 percent import tax, a 17 percent value-added tax, and a variable consumption tax. But to avoid or cut down on taxes, foreign automakers often agree to take part in joint ventures with Chinese companies.

Looking at the big picture, China is investigating over 1,000 auto companies beyond GM, according to China Daily. These include Chinese and foreign companies in the auto industry. Seven or more foreign carmakers have cut prices for vehicles in China, as the antitrust inquiries take place. Antitrust inquiries are also taking place in the telecom sectors, as are cement and medical companies, China Daily reported.

In a statement to InsideCounsel, Michael Spence, a Nobel prize winning economist who teaches at New York University's Stern School of Business, said that, "Under normal competition policy rules, charging a high price is not a violation of anything unless there is collusion among competitors," Spence explained. "There doesn't seem to be any evidence or commentary on that point."
 
He added that high prices "should make more rather than less room for domestic competitors."

Contributing Author

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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