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Malaysia Opens Auto Sector To Foreign Investors

Country is allowing 100 percent foreign ownership and offering a 10-year tax break for production of green vehicles as it seeks to catch up with Thailand as a regional auto hub.

KUALA LUMPUR, Malaysia (AP) -- Malaysia unveiled plans to open up its auto sector, allowing 100 percent foreign ownership and offering a 10-year tax break for production of green vehicles as it seeks to catch up with Thailand as a regional auto hub.

The trade ministry said Wednesday it will also end a three-year freeze on manufacturing licenses for luxury cars with engine capacity of 1.8 liters and above and priced at no less than 150,000 ringgit ($44,118) as well as for hybrid, electric and commercial vehicles.

It also scrapped rules requiring part of the equity to be allocated to ethnic Malays in these areas, allowing foreigners to now hold 100 percent ownership in a move to lure investors.

The measures are part of a new national automotive policy effective January to make the sector more competitive as Malaysia strives to compete with neighboring Thailand, which has gained a reputation as the "Detroit of the East."

"It is true that Thailand has done a lot better than us ... we would like Malaysia to be more competitive. We want a viable auto sector. We want Malaysia to be a hub for the auto industry," Trade Minister Mustapa Mohamed told a news conference.

Malaysia is Southeast Asia's largest passenger vehicle market, with about half a million vehicles sold annually.

But its policy to protect national players such as Proton and compact carmaker Perodua through ownership constraints and high taxes put it at a disadvantage against Thailand, which has no domestic automakers and has emerged as a regional base for many global car manufacturers like General Motors Co. and Toyota Motor Corp.

Mustapa said the government wants state-controlled Proton to tie-up with an established global player to ensure its long-term survival. He said talks are ongoing but declined to give details.

"We know there have been many discussions ... we hope it will be finalized very soon. We have no deadline, it's a business decision," he said.

Once the king of the road, Proton's fortunes have dwindled due to growing competition. Proton has been hunting for a foreign partner but the government's insistence on maintaining control over a national corporate icon has made it difficult for Proton to seal any meaningful partnership.

Germany's Volkswagen AG ended alliance talks with Proton in 2007 but recently revived negotiations.

Mustapa said Malaysia would focus on niche sectors including hybrid and electric cars which have large untapped potential in the region.

The government will offer a 10-year tax break, customized training and research grants and excise duty exemption for assemblers and manufacturers of hybrid and electric vehicles and components. It will also draw up plans to develop infrastructure for electric vehicles, he said.

Mustapa, however, said the current auto tax structure remained unchanged. Import duties were lowered three years ago but Malaysia still has high local excise taxes ranging from 60 percent to 105 percent on vehicles.

He said a controversial auto licensing rule for importers will only be scrapped by 2020, instead of 2010. There will be no "quantitative restrictions" on car imports by 2020 in a further liberalization of the market, he said.

Car manufacturers and analysts cheered the new liberalization measures.

"Malaysia has been very much behind Thailand and this is a good opportunity for us to catch up," said Aishah Ahmad, president of the Malaysian Automotive Association.

Ahmad Maghfur, auto analyst with OSK Research, said Malaysia hopes to woo European car manufacturers to set up base here by liberalizing the luxury car segment. At the same time, Proton and other local players remain protected with no changes in the tax structure and continous government grants offered to them, he said.

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