Pictured here is a JAC 4S shop in Rio de Janeiro. JAC was the first Chinese automaker to invest in Brazil and is currently the largest Chinese automaker in the country. [Wang Xinyang / Xinhua]

Firms plan to produce locally to avoid paying high tariffs

A slowdown in India's auto market may mean a windfall for fellow BRICS countries, especially Brazil, analysts in the media predict.

Several domestic automakers have announced that they are postponing investment in India due to market conditions there, according to India's authoritative business newspaper the Economic Times.

The paper predicts that the investments will flow to Brazil based on previous statements by Chinese automakers, who have expressed interest in increasing investments there.

The South American country is now the fifth-largest automotive market in the world.

For a long time, the world's auto giants have viewed the country as a foothold in the South American market. International automotive companies like Volkswagen, Ford and GM have captured over 70 percent market share in the country.

Many Chinese automakers are also turning to this emerging market because intense competition from international automakers at home leaves them little room to develop.

In addition, Brazil's new investment policies have further piqued the interest of increasing numbers of Chinese automakers.

Last April, the Brazilian government announced it would levy a 30 percent industrial product tax on imported vehicles, but if more than 65 percent of its spare parts are made in Brazil or Argentina, Uruguay and Paraguay - all members of the South American Common Market - the automaker is eligible for a tax refund or even an exemption.

The regulation has prompted more and more Chinese automakers to consider building plants in Brazil to avoid the high tariff.

Local production

In August last year, Zhejiang Geely Holding Group began exporting vehicles that were made in Uruguay to Brazil, and it announced a plan to build a plant in the country with an initial investment of between 400 million yuan ($64 million) and 500 million yuan and an annual production capacity of some 100,000 units.

In the same month, domestic automaker Lifan announced that it has invested $30 million in purchasing Uruguay's Besiney Company.

Lifan will build new facilities in Uruguay and Brazil that will have a combined production capacity of some 10,000 units when they become operational in 2014.