China to lift ownership limits
• Analysts say move may defuse trade tensions with US
China will let foreign vehicle makers from Volkswagen to Ford own more than 50% of local ventures, removing a twodecade restriction and giving a boost to global companies seeking to capture a greater share of the world’s largest car market.
China will let foreign car makers from Volkswagen to Ford own more than 50% of local ventures, removing a two-decade restriction and giving a boost to global companies seeking to capture a greater share of the world’s largest car market.
Electric-car makers such as Tesla will see the swiftest benefit, with ownership limitation for such businesses lifting as soon as 2018. The caps for commercial and passenger vehicles will be eliminated in 2020 and 2022, respectively, the agency that oversees industries said on Tuesday.
The move may help defuse tension between China and the US after President Donald Trump’s intensified rhetoric risked an all-out trade war.
Companies from Daimler and BMW to General Motors (GM) and Toyota will find it easier to manufacture and do business in China, while local makers will be under more pressure to speed up the building of their own brands. The announcement comes on the heels of a similar move for the financial industry last week.
“In a decade, foreign car makers will gradually become all independent and Chinese companies will lose the cash flows from the joint ventures,” said Yale Zhang, an analyst with Automotive Foresight Company in Shanghai.
STOCKS GAIN
“Foreign car makers will be happy as they won’t have to share 50% of the profits with their Chinese partners.”
Share prices of German car makers all gained on the news, reversing earlier losses. China accounts for about half of Volkswagen’s namesake brand sales, while the world’s biggest car market is also the most significant buyer of luxury Mercedes, VW’s Audi unit and BMW vehicles. Volkswagen shares rose as much as 1.2%, and BMW and Mercedes-maker Daimler rose about 0.5%.
German and US car makers were quick to welcome the news, while giving the assurance that they will not abandon local partners. Volkswagen said it would evaluate whether China’s move would lead to new options, saying its existing joint ventures would not be affected. GM said its growth in China was a result of working with its partners, and it would keep doing so. Tesla declined to comment.
Elon Musk’s Tesla, in particular, is in a position to benefit from the relaxed ownership rules. Musk has not been able to secure a deal to open an assembly plant in China, after negotiating with Shanghai’s government for more than a year.
The sides disagreed on the ownership structure, people with knowledge of the situation said in February. The risk of higher import taxes spurred by Chinese trade friction with the US would be allayed if Tesla were able to secure a production.
Those losing out include local new-energy vehicle makers such as BAIC and BYD, with BYD in particular set to face tougher competition from any lowerpriced Teslas, said Dan Zhuang, an analyst at Rhb Osk Securities Hong Kong. “The pace of the open-up is much faster than the market had thought,” Zhuang said. “If Tesla produces from China, BYD may face the pressure to lower price and thus a weaker margin.”
China has moved towards eliminating the caps in recent years with promises of their eventual removal. China has required foreign car makers to enter into ventures with domestic partners to operate since 1994, with the overseas company holding no more than 50%.
For years, the so-called 50:50 rule was a sacred cow for the car industry, seen as necessary to buy local car makers time to gain the technology and build their brands before giving overseas car makers unfettered access to the market.
The removal of the cap signals that Chinese officials now have more confidence in their home-grown contenders.
The move was “a good stimulus to urge Chinese companies to strengthen their own brands at a faster pace rather than relying on the joint ventures to feed them”, Zhang said.
Foreign car brands, meanwhile, now had years of experience from operating in China and believe they can go solo without a local partner guiding them, the analyst said.
“In their eyes, Chinese have little contribution to the brands and products,” Zhang said.
IN A DECADE FOREIGN CAR MAKERS WILL BE INDEPENDENT AND CHINESE COMPANIES WILL LOSE OUT ON JOINT VENTURES