China to drop 50:50 rule and allow foreign majorities in joint ventures

18 April 2018

China to drop 50:50 rule and allow foreign majorities in joint ventures

18 April 2018

China is to allow foreign vehicle manufacturers to own more than 50% of their joint ventures with domestic companies, removing a two-decade restriction and giving a boost to business seeking to capture a share of the world’s biggest vehicle market.

Electric vehicle makers such as Tesla will see the biggest benefit from the move, with the plans expected to come into force by the end of the year for electric vehicle (EV) partnerships. The cap for commercial vehicles will be removed from 2020 and traditionally powered vehicles by 2022, to reduce tensions in the trade partnership between the country and the US.

In March, US President Donald Trump announced plans to increase import charges on steel and aluminium, before stating that he could apply the same decision to vehicle imports. It is seen as a move to protect US industry which is suffering under the number of European and Asian vehicles coming into the country’s market. The news brought ire from the German auto industry and the European Commission.

Companies from Daimler and BMW to General Motors, Toyota Motor and Ford Motor are set to find it easier to manufacture and do business in China under the new plans, 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 financial industry last week.

Volkswagen is another company that will benefit from the plans. The company has a joint venture through its SEAT brand with Chinese firm JAC. Ford is another company that will gain through its joint venture partnership with Anhui Zotye Automobile. Both companies are aiming to use the Chinese market to boost their EV plans as they look to develop for the European market. Both automakers have announced that they will not abandon their partners following the announcement.

VW said it would analyse if China's move leads to new options, saying its existing joint ventures won't be affected. GM said its growth in China is a result of working with its partners, and that it would keep doing so. Tesla declined to comment.

BMW, which has a big stake in trade relations between Beijing and Washington as the biggest exporter of vehicles from the United States to China, welcomed the car decision. ‘We believe a more free and flexible business environment will benefit both Chinese and foreign companies in China and the Chinese economy. BMW will continue pursuing mutual benefit and win-win solutions with the local partners,’ the carmaker said.

China has required foreign automakers to enter into ventures with domestic partners to operate in the country since 1994, with the overseas company holding no more than 50% in the business. This was done to protect domestic industry and give it an opportunity to catch up with technology and build their brands. The move can be seen as China having more confidence in its auto industry, with its companies making inroads into the European market. Geely owns the Volvo brand while its chairman is the biggest shareholder in Daimler, and SAIC markets MG in the UK, with opportunities to push sales into mainland Europe.

Earlier in April, PSA Group chairman Carlos Tavares warned that while European manufacturers are fighting to deter financial penalties due to rising CO2 levels, Chinese companies may be poised to take advantage. ‘If a European carmaker missed its [CO2] targets and was brought to its knees by fines, it could not be acquired by another big European carmaker purely because of antitrust rules,’ he stated. ‘The impact is very obvious. It's going to create a Chinese Trojan Horse in Europe.’