YANG JIAN

Automakers needn't get caught up in China trade spat

Yang Jian is managing editor of Automotive News China.

SHANGHAI -- Chinese President Xi Jinping sought to defuse the threat of a spiraling trade war with the U.S. last week with promises to better protect intellectual property rights, reduce tariffs, ease foreign-ownership limits and further open China to foreign investors.

It's not clear whether those promises will be enough to stave off a tariff battle between the world's two largest economies, or when they might come to fruition.

But even if they do come true, chances are they will make only a modest difference to U.S. and global automakers seeking to expand their sales and market share in China.

Among U.S. automakers, Tesla Inc. would make out best from the tariff cuts Xi has dangled. In 2017, it imported 14,779 electric vehicles into China, according to LMC Automotive, a market consultancy.

Ford Motor Co. and Fiat Chrysler Automobiles' Jeep brand also stand to gain. Last year, Ford sold 72,942 imported vehicles in China, of which about two-thirds were Lincoln models. FCA delivered 16,545 imported Jeep models.

General Motors, the largest U.S. automaker in China, now builds virtually every model sold in China locally, so it has limited exposure to tariff changes. GM's top-selling imported model in China is the Chevrolet Camaro, according to LMC. But last year, only 977 Camaros were delivered in China.

BMW Group, Toyota Motor Corp., Daimler and Volkswagen Group import far more vehicles into China than their American peers. In 2017, each of the four companies imported more vehicles into the market than American brands combined.

And with four decades of fast economic growth, Chinese consumers' demand for imported vehicles, especially SUVs and luxury brands, has remained strong.

Despite the hefty tariff, China's imports advanced 16 percent to nearly 1.25 million in 2017, according to the China Association of Automobile Manufacturers. A lighter tariff could lift them higher still.

But it's probably unrealistic to expect imports to account for a sizable portion of vehicle sales in China. Last year, nearly 28.9 million new vehicles were sold in China, the world's largest new-vehicle market. Imports represented only 4.3 percent.

To win Chinese market share, automakers are better off producing locally, which enables them to quickly increase output, cut shipping costs and adjust powertrain and design combinations to suit local customer needs. That is why nearly all global mass-market brands and most luxury marques have started production in China.

If Beijing eases or removes limits on foreign ownership of China-based production subsidiaries, Tesla may become the first international auto brand to operate a wholly owned subsidiary in China. But global automakers in general would prefer to maintain the status quo of their China joint ventures to avoid disrupting prosperous local operations.

Virtually all foreign automakers are building vehicles in China through joint ventures formed with local companies. And in the past few years, several of them that began local output two decades ago have renewed their joint venture contracts for 25 to 30 years.

That's because global brands need Chinese partners now more than before.

Beijing is set to enact a California-style carbon credit program next year to goad automakers to ramp up output of alternative energy vehicles: EVs, plug-in hybrids and fuel cell vehicles.

Unable to meet the requirements on their own in such a short time frame, Volkswagen and Ford have each incorporated a joint venture with a third local partner to produce and sell low-price EVs under new brands. By doing so, VW and Ford can quickly accrue carbon credits without undermining their brand images. GM, for its part, started selling a Baojun-badged electric microcar assembled under its joint venture with SAIC Motor Corp. late last year.

With a full-blown trade war appearing less likely than it did just a few weeks ago, global automakers can now concentrate on the tasks they need to carry out to grow market share in China. Much of that agenda will be on display when the Beijing auto show opens next week, showcasing a new crop of locally produced crossovers and luxury vehicles, such as the BMW X2, X3 and X4, and new crossovers from Volkswagen.

These automakers might be in line for some help from Beijing, but their main objective now is ensure business growth, without disturbances from external sources.

You can reach Yang Jian at yangjian@autonewschina.com

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