Au­tomaker eq­uity cap to be scrapped

In key open­ing-up move, 50% limit on for­eign in­vest­ment will be phased out

China Daily (Hong Kong) - - TOP NEWS - By LI FUSHENG li­fusheng@chi­nadaily.com.cn

China plans to phase out the eq­uity cap on au­to­mo­tive joint ven­tures by 2022, seen as one of the most far-reach­ing moves in decades to open up its car mar­ket, the world’s largest since 2009.

The cur­rent 50 per­cent cap on for­eign eq­uity, put in place in 1994, will be re­moved this year for com­pa­nies that pro­duce new en­ergy ve­hi­cles and spe­cial-pur­pose ve­hi­cles, the Na­tional De­vel­op­ment and Re­form Com­mis­sion said in a state­ment on Tues­day.

It said the lim­its will be scrapped for com­mer­cial car pro­duc­ers in 2020 and for pas­sen­ger car pro­duc­ers start­ing from 2022. For­eign car­mak­ers will be al­lowed to have more than two Chi­nese joint ven­tures as well in 2022. Fur­ther de­tails are ex­pected later.

Pas­sen­ger cars are the largest au­to­mo­tive seg­ment, ac­count­ing for around 85 per­cent of 28.9 mil­lion new ve­hi­cles sold in China last year.

“Four decades of re­form and open­ing-up have shown that, on the ba­sis of cer­tain de­vel­op­ments, only open­ing up can in­vig­o­rate the mar­ket, force com­pa­nies to in­no­vate and in­te­grate Chi­nese and in­ter­na­tional re­sources,” the com­mis­sion said.

Dong Yang, ex­ec­u­tive vi­cepres­i­dent of the China As­so­ci­a­tion of Au­to­mo­bile Man­u­fac­tur­ers, said in the long run, the move will help to build a pow­er­ful Chi­nese au­to­mo­tive in­dus­try, though at first it may bring more ben­e­fits to for­eign brands than Chi­nese ones.

Statis­tics from Dong’s as­so­ci­a­tion show that pas­sen­ger cars from Chi­nese brands ac­counted for around 44 per­cent of the to­tal sold in the coun­try in 2017.

Yale Zhang, man­ag­ing di­rec­tor of Shang­hai-based con­sul­tancy firm Au­to­mo­tive Fore­sight, said re­mov­ing the cap will re­sult in stiff com­pe­ti­tion, but it is ben­e­fi­cial for the mar­ket as a whole.

“Chi­nese car­mak­ers can­not rely too much on their joint ven­tures for profit, which means they have to work harder on their own models. This will help cull the in­com­pe­tent but cul­ti­vate the com­pet­i­tive such as Geely.” Zhang said.

“Also, since for­eign car­mak­ers are al­lowed to have larger eq­uity, which means more profit, they will step up their pace of in­tro­duc­ing new models into China, and that is a good thing for Chi­nese cus­tomers.”

Volk­swa­gen said that the move will en­hance con­fi­dence around the world in in­vest­ing in China, and will have a pos­i­tive im­pact on in­no­va­tion.

The car­maker said while it will ex­am­ine pos­si­ble new part­ner­ship op­por­tu­ni­ties, it will have no im­pact on its cur­rent part­ners in the coun­try.

Li Yan­wei, an an­a­lyst at the China Au­to­mo­bile Deal­ers As­so­ci­a­tion, said the mar­ket is un­likely to see too many fluc­tu­a­tions be­cause most ma­jor in­ter­na­tional car­mak­ers al­ready have part­ner­ships in China.

“Those that have not come are ei­ther in­com­pe­tent or niche brands. But re­mov­ing the eq­uity cap for new en­ergy car­mak­ers this year is good news for Tesla, which wants to build a wholly owned plant in the coun­try.”

Tesla, which had said it ex­pected to start pro­duc­tion in Shang­hai around the end of the decade, said there is cur­rently no change in its plans.

China will lift share­hold­ing lim­its in the ship­build­ing and air­craft man­u­fac­tur­ing in­dus­tries for for­eign in­vestors this year, ac­cord­ing to the Na­tional De­vel­op­ment and Re­form Com­mis­sion.

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