Northwest Arkansas Democrat-Gazette
Changes in China
Limits on foreign carmakers to be lifted over next five years.
BEIJING — Facing the risk of a trade fight with the United States, China announced plans Tuesday to allow full foreign ownership of automakers in five years.
The change would scrap rules that require global automakers to work through state- owned partners — an arrangement that forces foreign companies to share technology with potential competitors in China. It was unclear whether Beijing’s action might mollify President Donald Trump, who has threatened to levy tariffs on $ 150 billion of Chinese goods in response to complaints that Beijing pressures foreign companies to hand over technology.
The possibility of a trade war between the world’s two largest economies has shaken financial markets
and raised concerns that it could threaten the steady economic growth that is buoying most of the regions of the world.
The lending agency kept its forecast for global economic growth this year at 3.9 percent, which would be the fastest pace since 2011. But Obstfeld warned that that bright outlook depends on avoiding a major trade conflict.
In China, the move to open the auto industry reflects growing official confidence in the country’s young but fast-growing automakers and a desire to make the industry more flexible as Beijing promotes the development of electric cars.
Automakers had been awaiting details since President Xi Jinping announced last week that ownership restrictions would be eased and auto import duties reduced. Some analysts saw Xi’s promise as an attempt to placate Trump, but Chinese government spokesmen said the plans had nothing to do with Beijing’s trade dispute with Washington.
Limits on foreign ownership of electric-vehicle producers will be eliminated this year, the Cabinet’s planning
agency said. That change will be followed by a similar repeal for makers of commercial vehicles in 2020 and for passenger vehicles in 2022.
“Following a five- year transition period, all ownership restrictions will be lifted,” said the announcement by the National Development and Reform Commission.
Until now, major global automakers such as General Motors Co. and Volkswagen AG have been allowed to own no more than 50 percent of a joint venture with a Chinese partner. And they were limited to two ventures.
Foreign automakers complied as the necessary price to access China’s populous market, which passed the United States in 2009 as the world’s biggest by number of vehicles sold. Sales of sedans, SUVs and minivans last year totaled 24.8 million units. About 55 percent of them were American, European, Japanese and Korean brands.
Some Chinese- foreign automotive joint ventures go back more than two decades. General Motors, for instance, started its Chinese operations in 1997. It now sells more than 4 million vehicles annually there — more than it sells in any other market, including in the United States.
GM sells vehicles under five brand names in China — Buick, Cadillac, Chevrolet, Baojun and Wuling — and is
traditionally among the two top-selling companies there. The company could enjoy a big financial gain if it sheds its Chinese partners. Last year, the Detroit company made $1.95 billion off its 50 percent equity stake in China.
It’s unlikely that foreign automakers would sever themselves completely from their Chinese partners even after the phase-in period, said Jeff Schuster of the consulting firm LMC Automotive near Detroit.
“It’s difficult to unwind; you’ve already got the relationships established,” Schuster said.
But Schuster does envision foreign automakers reducing the size of their Chinese partners’ ownership stakes and separating their intellectual property from those partners.
“You could see [autonomous vehicle] development peel away from the joint venture partner,” he said. “It all comes down to balancing your risk over your intellectual property against the cost of developing on your own.”
Independent Chinese brands such as Geely, which owns Sweden’s Volvo Cars; SUV maker Great Wall; and electric car brand BYD Auto, are developing technology and increasing exports.
Geely has bought a nearly 10 percent stake in Daimler AG, becoming the German
automaker’s biggest shareholder and gaining leverage to push for technology sharing. State-owned Dongfeng Motor Group, which has joint ventures with Nissan Motor Co. and other brands, bought a 14 percent stake in France’s PSA Peugeot Citroen in 2014.
“Chinese companies such as Geely and Great Wall have financial power and technology resources,” said industry analyst John Zeng of LMC Automotive. “It’s not like 10 years ago, when foreign brands had a big technology advantage.”
Tuesday’s announcement coincided with a Commerce Ministry order requiring importers of U.S. sorghum to post bonds to pay possible anti-dumping duties in a separate dispute. It said preliminary results of a trade inquiry had found that U.S. sorghum, a grain used as animal feed and in liquor distilling, was sold at improperly low prices that hurt Chinese farmers.