Recall system to impose heavy fines

Automotive industry under pressure to improve technology and quality

China is seeking to improve its automotive industry's recall system, releasing national regulations outlining heavy financial penalties intended to improve management, supervision and safety in the sector.

The new regulations were released by the State Council on Tuesday and included tire makers in the recall system for the first time.

The amended Administrative Regulations on Defective Automotive Product Recalls have been compiled to address rising concerns about the quality of vehicles, and will be effective from Jan 1, the State Council said.

According to the new regulations, both domestic and international automobile manufacturers will face fines of 50,000 to 200,000 yuan ($8,000 to 32,000) if they fail to submit recall reports.

The penalty will be as high as 1 to 10 percent of total sales revenue of defective vehicles if manufacturers do not stop producing and selling problematic vehicles, conceal the problems, or refuse to carry out the recall.

If a case is serious enough the manufacturing license of the automaker may be revoked, according to the new regulations.

The previous rules outlined in the General Administration of Quality Supervision, Inspection and Quarantine in March 2004 fined the automobile manufacturers between 10,000 and 30,000 yuan if they refused to recall defective vehicles.

Analysts said the amended regulations will increase penalties by hundreds of million yuan, which will act as an effective deterrent to automakers.

"No automaker can ignore such a high penalty. The new regulations will greatly improve quality awareness among all automakers in China," said Jia Xinguang, an independent auto analyst in Beijing.

"It will also help boost the standard of after-sales service for all vehicles, locally produced and imported.

"But execution is key to the recall system in China, which is closely related to road safety," Jia said.

Statistics from the General Administration of Quality Supervision, Inspection and Quarantine reveal that as of Monday, 480 batches of vehicles, totaling 8.99 million units, had been recalled in China, the world's largest automobile market.

Lacking quality administration and supervision, China has lagged behind Western countries in establishing a reliable vehicle recall system.

Figures show that in 2009, the United States recalled 517 batches of vehicles, consisting of 17.84 million units, Japan recalled 291 batches comprising 3.11 million vehicles. However, China, which replaced the US as the world's largest automobile market in 2009, only recalled 56 batches representing 1.36 million units in that year.

"It's not reasonable that recalled defective vehicles only accounted for one-tenth of the annual sales," said Jia.

Analysts also said that the new regulations will bring more challenges to Chinese auto brands than their foreign rivals, as the US and European automakers have been familiar with recall systems worldwide for many years.

"We feel pressure as the technologies in Chinese vehicles are not as advanced as those of foreign brands. However, the new regulation will push Chinese automakers to put more effort and investment into technology and quality," said Yang Xueliang, spokesman of Zhejiang Geely Holding Group, a Chinese automaker based in Hangzhou, Zhejiang province. "It will benefit local automakers from a long-term perspective."