China pledges to remove investment caps on foreign car companies by 2022
April 24, 2018 Category Automotive, Weekly
The Chinese government announced it will scrap foreign ownership limits on local auto firms by 2022, boosting companies such as Tesla which may wish to have a wholly-owned subsidiary in the world’s largest auto market. The timetable of wider market access for foreign auto markers was published after President Xi Jinping told the Boao Forum that China would cut import tariffs and relax foreign ownership restrictions. Currently, foreign carmakers are required to set up a joint venture with a local firm in which there is a 50% investment cap. The cap will be scrapped for new energy vehicle manufacturers this year, for commercial car producers in 2020, and for passenger car producers starting from 2022. Foreign carmakers will be allowed to have more than two Chinese joint ventures as well in 2022. Passenger cars are the largest automotive segment, accounting for around 85% of the 28.9 million new vehicles sold in China last year.
The first to benefit from the relaxation are expected to be new energy carmakers that wish to expand in China. “The growth of traditional carmakers has been pretty stable under the mixed ownership model,” said Toliver Ma, Auto Analyst at Guotai Junan Securities in Hong Kong, adding that the fast growing electric vehicle market will become more competitive as a result of the relaxation. But it will still be some time before a wholly-owned foreign auto manufacturer is set up in China regardless of the implementation time frame by the government, according to Peter Chen, Shanghai-based Engineer with U.S. component maker TRW.
“Nearly all the major global brands have set up their joint-ventures with Chinese partners and it will be unreasonable for them to add many new production lines in the market,” Chen said. General Motors said it would continue to work with existing Chinese partners, suggesting it is in no hurry to set up fully-owned plants in the near future. In November, Tesla’s Chief Executive Elon Musk said the company was three years away from making cars in China. But the ownership structure has proven to be a stumbling block, with Chinese authorities insisting that the plant be set up through a joint venture with local partners, while Musk wanted it to be fully owned by Tesla. China imported 17,000 Tesla vehicles in 2017, up 51.6% from a year earlier, according to the China Automobile Dealers Association (CADA). Passenger cars from Chinese brands accounted for around 44% of the total sold in the country in 2017. China is now the world’s biggest electric vehicles (EV) market, outselling both the U.S. and Europe.
China will also lift shareholding limits in the shipbuilding and aircraft manufacturing industries for foreign investors this year.
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