Prices for imported vehicles were supposed to fall during the first half of the year due to increased quotas and lower tariffs, but higher demand actually pushed prices up during the period.

About 23,300 sports utility vehicles were imported during the first half of the year, an increase of 95.1 percent from the same period last year, but growing demand for SUVs prevented the expected prices cuts from happening.

Total vehicle imports jumped 73.6 percent to 90,600 units in the first half, 84.6 percent of which are sedans and SUVs, according to China Customs.

"The acceptance of SUVs by domestic buyers contributed to imports of the vehicles almost doubling," said Yale Zhang, an analyst for Automotive Resources Asia Ltd.

Zhang said many rich people in China believe imported cars built better than domestically produced cars and the top foreign brands, such as Mercedes and BMW, offer more social status than driving a Santana or Buick.

Imported middle- and low-end cars face a much tougher time competing with domestically produced vehicles, analysts said.

"SUVs are very popular here and hard to get," said Wang Qunxing, of Shanghai Zhong Xing Motors Trading Co Ltd, a local dealer of imported vehicles.

"We just handle luxury brands like BMW and Mercedes-Benz now, because demand for those are much higher than middle- and low-end imported cars," Wang said.

Zhang said that if there are no major changes to market factors such as the value of the renminbi, quotas or tariff, demand for imported luxury cars will continue to climb.

China's auto import quota was set at US$9.12 billion this year, including auto parts, compared with US$7.935 billion in 2002.

Although the Chinese government promised to cut car tariffs to 25 percent by 2006, this year's figure was held at about 43 percent.

The government has also taken steps to ensure increased quotas don't harm the country's auto manufacturers. It has devoted most of the quota increase to auto parts rather than completed cars.

Last year, only 24 percent of the quota was allotted to completed cars.

China is committed to lift the quota restriction on imported automobiles by 2005, with quotas increasing 15 percent annually by the end of 2004.

China has set next year's import quota for cars and car parts at US$10.49 billion, 15 percent higher than this year's US$9.12 billion, the Ministry of Commerce said in a statement.

(eastday.com August 1, 2003)