Manufacturing News

China signals it may loosen JV ownership limits on foreign automakers

China has provided the clearest indication to date that it plans to lift the cap on how much foreign carmakers can own of their local joint ventures.

The government's goal is to pressure Chinese automakers to speed the building of their own brands.

In a joint release on Tuesday, the National Development and Reform Commission together with the science and industry ministries laid out a development blueprint for the auto industry covering the years through 2025.

The government will "open up the restriction on joint venture ownership in an orderly manner," according to the plan, which provided no details about the liberalization or a timeline for it.

The so-called 50-50 rule -- named after the 50 percent limit that foreign companies can own of their Chinese joint ventures -- has been a sacred cow for Chinese automakers. It is supposed to buy time for local carmakers to build their brands before giving foreign automakers unfettered access to China.

That began to change in 2014 when a Chinese commerce ministry official suggested that local carmakers should prepare for the day that the rule will be relaxed. The prospect of allowing foreign automakers to own all of their Chinese operations prompted the chief of the state-backed China Association of Automobile Manufacturers to remark that Chinese brands would be "killed in the cradle."

Trade talks
Most recently, China was ready to relax the policy during President Xi Jinping's visit to the U.S. this month for a summit with President Donald Trump. Bloomberg reported in June that China's government was considering loosening the policy that has long been criticized for shielding state-owned companies from competition.

While Tuesday's proposal did not indicate whether the ownership cap would be gradually eased or eliminated, it's the first official written indication that the government will relax the limit.

"My opinion on this has been that over the long run the restriction on the stake cap will be lifted," said Dong Yang, vice chairman of the China Association of Automobile Manufacturers, after attending a meeting organized by the industry ministry to discuss the plan. "But it won't work if we remove it immediately and that is what 'orderly' means."

Market share
Less than half the record 23.9 million cars, SUVs and minivans sold in China last year were local brands. Market share for Chinese-brand cars has stayed fairly constant, reaching 43 percent last year from 41 percent a decade ago, according to the state-backed manufacturers association.

Automakers such as Honda said there are benefits of a local partner in China.

"They teach us many things and we are working together," Yasuhide Mizuno, Honda's China chief, said Tuesday in Tokyo. "And this won't change even if the stake-holding regulation changes" in the local joint ventures, he said.

Audi welcomes market liberalization in general, said China spokeswoman Johanna Barth. There are no concrete details in the plan, which won't affect Audi's joint venture with FAW and ongoing talks with SAIC Motor to make Audi cars, she said.

"Whether or not the rules are weakened, what is important is a win-win situation for all the parties," said Zeng Qinghong, chairman of Guangzhou Automobile Group, in Tokyo. The automaker has local joint ventures with Fiat Chrysler Automobiles, Honda and Toyota.

Representatives of General Motors, Volkswagen, Ford and SAIC Motor couldn't immediately comment. Hyundai Motor Co. said it has no immediate comment.

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