China's newly implemented auto recall regulations, masterminded by the nation's quality control watchdog and scheduled to take effect this week, are already exerting some influence on the sector and might lead to more consumer-oriented legal provisions, suggest officials and experts.

"The new rule has begun playing its expected role of regulating the market, as right before the actual implementation deadline of October 1, several automakers have acted voluntarily to recall (vehicles)," said Bi Yu'an, a senior official with China's General Administration of Quality Supervision, Inspection and Quarantine (GAQSIQ).

"Under the new regulations, automakers operating in China have started to attach greater importance to the quality of their products. And we are confident about ... the rule's future implementation."

GAQSIQ, the nation's product-quality watchdog, has received numerous complaints through the recall mechanism, Bi said.

He added some automakers have been investigated.

He did not provide additional details.

"From the perspective of protecting carmakers, and the industry as a whole, we will not release names of those enterprises being probed." Bi said.

"We will take an amiable stance to, on the one hand, address the problems of poor quality, and to, on the other hand, drive the local auto industry," Bi said.

To date, carmakers, being investigated for potential quality flaws, have been quite cooperative, Bi added.

Since the recall mechanism is incapable of addressing all quality-related problems associated with automobiles sold in China, GAQSIQ is working, around the clock, to draft a universal "three guarantees" quality warranty mechanism.

The three guarantees would be the guarantee of a refund, repairs and/or exchanges of flawed goods.

"The regulation was produced by our department, not by the State's legislative body. It was designed to cope with general and minor flaws of automobiles," Bi said.

"In fact, we are paying more attention to the new regulation, and it is one of our priorities for this year. We hope to roll out the 'three guarantees' rule by the end of this year."

The "three guarantees" will address more ordinary quality-related problems, Bi said.

"It will be a rule that protects consumers' interests from another perspective. Problems related to auto safety and security can be addressed by the recall mechanism, but people's attention will naturally shift to more general and common quality flaws," Bi said.

"That is why we are sparing no effort to push this."

Role model

The recall regulation can serve as a role model for officials drafting similar regulations regarding other products, Bi said.

"The State Council's legal office has taken the matter, of product quality, under serious consideration, and is expected to draft formal laws and regulations to address the problem," Bi said.

"The office will definitely draft a formal auto-recall law. We have offered advice to the legislative body, and urged that the recall regulation be expanded to other products,"

Of course, Bi added, different products have different characteristics, and, therefore, may require different stipulations.

If the law is drafted and implemented quickly, average vehicle purchasers will benefit, as the market's environment calls for more stringent legal provisions to address the problem, experts suggest.

"GAQSIQ is offering relevant implementation measures to ensure the regulation's implementation in based on good intentions," said Jia Xingguang, chief analyst of the China National Automotive Industry Consulting and Development Corp.

"However, these measures may not prove to be effective in practical terms, without legal support from formal laws and regulations.

"If legal provisions are available from the country's legislation watchdog, then there will be strong backing for the implementation of the recall mechanism."

To take effect

The recall regulation is expected to ensure Chinese consumers have their faulty cars fixed, especially in cases in which foreign automakers exclude China in their recalls.

The regulation is scheduled to take effect on October 1.

The regulation applies to both domestically made and imported vehicles.

The regulation was first announced on March 15, with four detailed rules to make the provisions on defective auto recalls more feasible, and to standardize investigations into defective cars.

Automakers will be compelled to recall defective vehicles. They risk being placed on a "blacklist" and facing a maximum, 30,000-yuan (US$3,600) fine if they are caught trying to cover up problems with their vehicles.

GAQSIQ is responsible for the organization and management of the recall. Depending on circumstances, government officials can order manufacturers to recall flawed automobiles, change vehicles' parts and/or pay fines.

The regulation applies only to vehicles that have fewer than nine seats.

To ensure the scientific, objective and fair management of the recall implementation system, GAQSIQ plans to establish an expert committee, composed of professionals and representatives from qualified organizations, to examine and investigate each case.

GAQSIQ will collect information about all vehicle owners in China. Experts note that will be a difficult task, especially since there are many owners of second-hand vehicles.

Assisted by China's Ministry of Public Security (MPS), the department will find a way to resolve the problem, Bi said.

Each vehicle owner -- including purchasers of second-hand autos -- in China must register at MPS.

An auto recall system is necessary when vehicles have defects that are not dealt with by rules or standards, and, therefore, could result in potential safety and/or environmental problems.

Manufacturers of such vehicles must report the problems, the causes of the problems and steps to correct the problems to the department in timely manner.

The manufacturers must then file a recall application and repair the vehicles.

The manufacturers are also obliged to provide, in a timely manner, relevant information to consumers.

Difficult task

However, converting a recall decision is a much more complicated than merely displaying a positive attitude and causing a public stir.

Some experts doubt the implementation of the regulation will be effective because China lacks the conditions required to practise a recall system.

Finding defects is not an easy task, as some problems are ambiguous and easy to cover up, some experts suggested.

"It may be hard for a novice to find a defect in a car, or the cause of an accident, but it's a piece of cake for the experts," said Z. S. Jones, executive managing director of Shanghai WP Automotive Consultancy Co Ltd.

"Of course, there are instances in which the experts cannot find the causes ... We cannot find out every cause of human disease, but we will certainly not give up curing all kinds of diseases just because a small number cannot be cured."

Car consumers, until now, have not been able to turn to the "Product Quality Law" and the rule of the "three guarantees" for help.

The new recall regulation might not be so powerful, since the maximum fine is relatively small, said Jones.

"The maximum fine ... is, of course, not the key point. When automakers are under investigation, they will have to stop all their sales of that particular model. Even if they sell some, the vehicles' purchasers will not receive licence plates. And that will lead to great losses," Jones added.

Bi agreed.

"Imposing fines is not our ultimate goal. Our ultimate goal is to ... expose automakers that produce poor-quality vehicles," Bi said.

"By publishing the quality problems associated with certain carmakers, we can impose a kind of social pressure on them. The fear of damaging the reputation of their brand and/or reputation might prompt them to correct such problems."

"Of course, if they choose not to co-operate, we have harsher measures -- including eliminating their market access and import certificates. Therefore, we believe the recall rule will be effective in addressing quality-related problems."

Latest recalls

Mercedes-Benz, produced by German-US auto giant DaimlerChrysler, is the most recent automaker to apply to GAQSIQ to recall faulty vehicles sold in China.

Mercedes-Benz, scheduled to begin producing its E- and C-class sedans this year at DaimlerChrysler's joint venture in Beijing, recently announced the recall of 12,988 vehicles.

The recall involved Mercedes-Benz's S-, E-, A-, CL-, and CLK-class sedans for various defects.

The affected vehicles were produced between March 1997 and March 2004.

The recall is the second by Mercedes-Benz in China this year.

In January, the company recalled 17 C-, CLK- and E-class sedans in China as part of its global recall of 33,000 vehicles.

Dongfeng Peugeot Citroen, the Sino-French joint venture based in Central China's Hubei Province, has recalled 7,539 Citroen Picasso saloon cars due to air-conditioning problems.

Earlier this month, Chang'an Suzuki, the Sino-Japanese joint venture in Southwest China's Chongqing Municipality, began recalling more than 157,000 Alto mini cars due to faulty fuel pipes.

That was the largest vehicle recall in China's history.

Other domestic and foreign automakers -- including FAW Car Co Ltd, Guangzhou Honda, Mitsubishi Fuso Truck & Bus Corp and Toyota -- have recalled defective vehicles in China in the past three months.

(China Business Weekly September 29, 2004)