China to scrap ownership limits on foreign car makers

In this April 19, 2017, file photo, visitors look at the BMW 5 series vehicle displayed at the Auto Shanghai 2017 show at the National Exhibition and Convention Center in Shanghai, China.

In this April 19, 2017, file photo, visitors look at the BMW 5 series vehicle displayed at the Auto Shanghai 2017 show at the National Exhibition and Convention Center in Shanghai, China.   | Photo Credit: Ng Han Guan

All caps to be removed by 2022; currently, there is a 50% limit on ownership

China will scrap a limit on foreign ownership of automotive ventures by 2022 in a major policy shift to open up the world’s biggest car market, even as trade tensions simmer between Washington and Beijing.

In a move welcomed by Germany’s powerful car industry, China’s state planner said on Tuesday that it would remove foreign ownership caps for companies making fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020, and the wider car market by 2022.

Fee on U.S. sorghum

China imposed ownership restrictions in 1994, limiting foreign carmakers to owning no more than a 50% share of any local venture. Forcing foreign carmakers to work with Chinese firms was designed to help domestic carmakers compete.

The latest policy move marks a new twist in a see-saw week for Chinese trade. The country slapped a temporary fee on U.S. sorghum on Tuesday after the United States banned American companies from selling parts to Chinese phone maker ZTE Corp on Monday.

Germany’s 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 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. BMW added it remained committed to expanding a joint venture with China’s BBA and was still discussing how to structure a new partnership for its Mini brand with China’s Great Wall Motors.

Analysts said the main beneficiaries, at least in the short term, would be manufacturers focused on new-energy vehicles, including U.S. electric carmaker Tesla, which has been seeking to set up its own plant in Shanghai.

Risks for local firms?

The looser rules are likely to raise pressure on domestic carmakers, potentially hitting the likes of Warren Buffett-backed BYD Co. Traditional automakers will need to wait longer for any direct impact and could face more risks than opportunities in ditching their joint venture structures, said James Chao, Asia-Pacific chief at consultancy IHS Markit.

China will also scrap limits on foreign ownership in the shipbuilding and aircraft industries in 2018, the National Development and Reform Commission (NDRC) said.

The highly symbolic moves in autos come after President Xi Jinping said last week China would scrap ownership limits “as soon as possible”.