China announces timeline to open automobile industry to foreign ownership

Jeannie Matthews
April 18, 2018

To build cars in the world's largest automotive market - and avoid steep import tariffs - foreign automakers are now forced to create 50:50 joint ventures with Chinese companies.

China is apparently planning to eliminate foreign ownership restrictions for automobile factories.

CHINA'S economy grew 6.8 per cent in the first quarter of 2018, slightly faster than expected, buoyed by strong consumer demand and surprisingly robust property investment despite continued measures to tame rising home prices. There aren't "going to be any winners coming out of a trade war".

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 bright outlook depends on avoiding a major trade conflict.

The key question: As President Xi Jinping strives to curb debt and jousts with Donald Trump over trade, how much of the potential drag can the new growth drivers offset? Some analysts saw Xi's promise as an attempt to placate Trump. The risk of higher import taxes spurred by Chinese trade friction with the USA may be allayed if Tesla is able to clinch a local manufacturing agreement.

China's export sector also posted solid growth in the first quarter, with shipments to the US jumping 14.8 percent on-year.

China said Tuesday that it would introduce a huge import charge on United States shipments of sorghum, a grain that is used to feed livestock and make a liquor that's very popular with Chinese.

Under current rules, foreign automakers that want to produce and sell cars in China have to establish 50/50 joint ventures with Chinese companies.

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"Much like what happened after foreign automakers such as Volkswagen and Honda entered the USA market in the late 1970s, these transplants are likely to stimulate competition and raise quality standards". General Motors, for instance, started its Chinese operations in 1997. Products are sold under the Buick, Cadillac, Chevrolet, Baojun, Wuling and Jiefang nameplates. The company could enjoy a big financial boost if it manages to shed its Chinese partners.

The removal of the Chinese ownership limits can be beneficial to the U.S. EV maker and other carmakers focused on new-energy vehicles, at least in the short term, analysts told Reuters. "Foreign carmakers will be happy as they won't have to share 50% of the profits with their Chinese partners".

"It's hard to unwind; you've already got the relationships established", Schuster said.

Other automakers are encouraged by the news. The vehicles are being made as part of VW's joint venture with JAC.

Electric-car makers such as Tesla Inc. will see the swiftest benefit, with ownership limitation for such businesses lifting as soon as this year.

Geely has bought a almost 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. "We underestimated the power of consumption in China", said Iris Pang, Greater China economist at ING in Hong Kong. "It's not like 10 years ago, when foreign brands had a big technology advantage". While Japan's Nissan Motor Co said it would monitor developments and plan accordingly.

China is opening up its vehicle market.

BYD Auto is the biggest global electric vehicle producer by number of units sold and has a factory in California that produces electric buses. GM would not be as successful in China on its own. "More or less, Chinese brands already compete with them on a similar level in electric cars".

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