Foreign car firms get a lift in China

CHINA will allow foreign carmakers from Volkswagen to Ford Motor to own more than 50 percent 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 vehicles lifting as soon as this year. The cap for commercial vehicles will be eliminated in 2020 and that for passenger vehicles in 2022, the agency that oversees industries said yesterday.

The move may help defuse tensions 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 and Toyota Motor Corporation are set to find it easier to manufacture and do business in China, while local makers will be under increased pressure to speed up the building of their own brands.

China’s announcement comes on the heels of a similar move for the finance industry last week.

“In a decade, foreign carmakers 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 in Shanghai. “Foreign carmakers will be happy as they won’t have to share 50 percent of the profits with their Chinese partners.”

Shares in German carmakers 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 rose as much as 0.9 percent to €173.48. Both BMW and Mercedes-maker Daimler rose about 0.5 percent.

Benefit Elon Musk’s Tesla in particular is in a position to benefit from the relaxed ownership rules. Musk hasn’t been able to secure a deal to open an assembly plant in China, after negotiating with Shanghai’s government for over a year.

The sides disagreed on the ownership structure 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 production.

Those losing out include local new-energy vehicle makers such as BAIC Motor Corporation and BYD, with BYD in particular set to face tougher competition from any lower-priced Teslas, said Dan Zhuang, an analyst at Rhb Osk Securities Hong Kong Ltd.

“The pace of the open-up is much faster than the market had thought,” Zhuang said. “If Tesla produces from China, BYD may face pressure to lower prices and thus a weaker margin.”

China has moved towards eliminating the caps in recent years with promises of their eventual removal, with Bloomberg News reporting in 2016 that the government was considering the move. China has required foreign carmakers to enter into ventures with domestic partners to operate in the country since 1994.

For years, the so-called “50:50 rule” was a sacred cow for the car industry, seen as necessary to buy local carmakers time to gain the technology and build their brands before giving overseas carmakers unfettered access to the market. The removal of the cap signals Chinese officials now have more confidence in their home-grown contenders.

Foreign car brands, meanwhile, now have years of experience from operating in China and believe they can go solo without a local partner guiding them. – Bloomberg