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New Chinese Policy Allows Full Foreign Ownership Of Car Factories

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Chinese authorities started to allow full foreign ownership of passenger car manufacturing on January 1, 2022.

The change was reported in a document issued on December 27, 2021, by the Chinese Ministry of Commerce and the National Development and Reform Commission.

This new policy means from this year foreign manufacturers can have full ownership of factories and other facilities for manufacturing in China, instead of the existing agreement that foreign investors (such as Volkswagen, Honda, Ford, etc.) have to form joint ventures with Chinese local auto companies before successfully entering Chinese car market.

The new policy overrides the requirement since 1994, whereby China required foreign automakers to form a 50:50 joint venture with one of its local carmakers to enter the Chinese new car market.

By the end of last year, that requirement meant outside carmakers were required to tie up investment in China. At the same time, they shared profits and technology with their Chinese partners.

In 2018, the rules changed to allow foreign investors a maximum of 70 percent ownership of Chinese auto companies.

Let’s take BMW as an example. Previously BMW had a 50-50 joint venture with Chinese automaker Brilliance. After the new rule that allowed the foreign partner to own 70%, BMW raised its stake by buying 20% from Brilliance.

Lifting the restrictions also gives chances to encourage and motivate international start-ups to enter the Chinese car market without finding a local partner and forming a joint venture beforehand.

BYD-Daimler deal we reported days before can be the first result of the new policy, which was announced shortly before the new rules were announced, where BYD raised its stake to 90%.

Meanwhile, this new move could motivate local partners to withdraw from the existing joint ventures with western companies when needed.

Source: ThePaperPcAutoQQ

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5 COMMENTS

  1. An exception was made for Tesla, as Beijing allowed it to take advantage of the new law early (2018), and own 100% of its enterprise in China.
    Now the interesting thing to watch will be which of the 13 foreign automakers will choose to take advantage of the new law and go it alone.
    Subaru having abandoned a joint venture in the past, perhaps might even come back for another try. It had entered China in 1998, under parent Fuji Heavy Industries, and formed a JV with Guihang down in Guizhou.
    And wasn’t the old law you mention, in force before “1994” , going back as far as the 1983 and 1984 joint ventures of American Motors and VW?

    • I’m not sure about if there was an actual law specifically for the automotive industry before that? I had always though AMC and VW had been negotiated over a number of years on a sort of case-by-case basis under general industrial laws, so perhaps something that more specifically pertained to cars that helped streamline the process is what the 1994 law is? I’m sure someone will be able to shed some light on that.

      I also remember reading that in the late-00s/early-10s or so, Subaru tried to enter again but Toyota’s stake in FHI/Subaru was an issue for regulators and Subaru’s attempts were blocked. Can’t remember who they were trying to partner with, I think it was Chery?

    • There are several sources mentioning the 1994 Policy on Automotive Industry as the formal implementation of the limited joint venture strategy (max 50% foreign ownership, max 2 jv’s per foreign entity). The joint venture strategy as such was already created in the early 1980’s, but without these formal limitations.

      Other thoughts:

      Tesla
      Was there ever an exemption? The removal of limitations on joint ventures were announced April 2018, Tesla Shanghai established May 2018, ownership limitation for NEV manufacturers removed in July 2018, Shanghai gigafactory contracts signed July 2018. I think no exemption was needed.

      Subaru
      Do they make anything China needs? Dependent on Toyota for NEV technology. I don’t see much room. Maybe as some Toyota sub-brand, but would that work in China?

      VW
      Might make a move sometime. Bought control of NEV joint venture JAC-VW in 2020, but also bought a 50% stake in parent company JAC Group. Maybe VW plans to acquire outright control of the group to use as leverage for better deals with SAIC and FAW. Just speculation. The yet to be established SAIC-Audi JV will be 60% Germany 40% China.

      BMW
      The Germans announced an increase in its share of BMW Brilliance to 75% a few years ago, but I don’t think it has been effectuated yet. I think it’s still 50/50, all I have read about it says the equity transfer would only take place when it is legally possible. Which is now.
      With Brilliance Group in bankruptcy proceedings, the deal may even never take place at all. BMW already showed some interest in Brilliance Zhonghua, so maybe they will take control of the entire group instead, while spinning of less interesting parts (Brilliance Shineray, Brilliance Xinri) for them. Again speculation.
      By the way, Renault Brilliance Jinbei seems to be in trouble as well, so the whole Brilliance thing may become a long story.

      General
      Many JV’s have very long running agreements, extending well beyond 2022. So it may take a while before things start to change.

  2. Joe I agree with your understanding of early Joint Venture share regulation….whatever the official policy may have been, it seems clear there was no possibility of a 51 to 100% foreign ownership at that time.

    “….to use as leverage for better deals with SAIC and FAW.”
    Leo, I think you are spot on with that assessment.

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