China will lift ownership limits on some foreign car makers by the end of 2018
Beijing — China announced a timeline for lifting ownership limits on foreign car makers on Tuesday, meeting a long-standing demand of the US and other countries seeking better access for their companies in the world’s biggest car market.
The country will end shareholding limits for new energy vehicle firms such as those that produce electric cars this year, according to the National Development and Reform Commission (NRDC).
The move will be followed by commercial vehicles in 2020 and passenger cars in 2022, when it will also do away with the restrictions limiting foreign vehicle makers to two joint venture partners, the NRDC said in a statement.
"After a five-year transition period, the auto sector will lift all restrictions," the NRDC said.
President Xi Jinping announced the plans last week without providing any details.
Xi’s announcement was among a raft of measures that were seen as potential concessions to US President Donald Trump as they face a potential trade war.
The NDRC also said the shipbuilding industry would do away this year with foreign ownership restrictions for firms designing, making and repairing vessels. The NDRC will also lift restrictions on foreign ownership of aircraft manufacturing firms this year, the agency said.
The commission said it would also release a new negative list for foreign investment in the first six months of the year to "substantially relax foreign investment access".
The new list will include the already announced opening of the financial services and vehicle sectors, and expand to include further opening for the energy, resources, infrastructure, transportation, and other sectors, the NRDC announcement said.
Shares of German car makers all gained on the news, reversing earlier losses. China accounts for about half of Volkswagen’s (VW’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. VW 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 reassuring that they would not abandon local partners. VW said it would analyse if China’s move led to new options, saying its existing joint ventures would not be affected. General Motors said its growth in China was a result of working with its partners, and that 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 hasn’t 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 lower-priced 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 toward 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 car makers to enter into ventures with domestic partners to operate in the country 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 vehicle 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 Chinese officials now have more confidence in their home-grown contenders.