China Will Allow Foreign Ownership Allowing More US Automakers In Market
BEIJING (AP) - Facing the risk of a trade fight with the United States, China announced plans Tuesday to allow full foreign ownership of automakers in five years.
The change would scrap rules that require global automakers to work through state-owned partners — an arrangement that forces those foreign companies to share technology with potential competitors in China. It was unclear whether Beijing's action might mollify U.S. President Donald Trump, who has threatened to slap tariffs on $150 billion of Chinese goods in response to complaints that Beijing pressures foreign companies to hand over technology.
The possibility of a trade war between the world's two largest economies has shaken financial markets and could threaten the steady economic growth that is buoying most of the regions of the world.
"If you keep poking at the economic expansion, it could turn around and bite you," Maurice Obstfeld, the International Monetary Fund's chief economist, told reporters Tuesday as the IMF issued its latest forecast for global growth. There aren't "going to be any winners coming out of a trade war."
The lending agency kept its forecast for global economic growth this year at 3.9 percent, which would be the fastest pace since 2011. But Obstfeld warned that that bright outlook depends on avoiding a major trade conflict.
In China, the move to open the auto industry reflects growing official confidence in the country's young but fast-growing automakers and a desire to make the industry more flexible as Beijing promotes the development of electric cars.
Automakers had been awaiting details since President Xi Jinping announced last week that ownership restrictions would be eased and auto import duties reduced. Some analysts saw Xi's promise as an attempt to placate Trump. But Chinese government spokespeople said the plans had nothing to do with Beijing's trade dispute with Washington.
Tuesday's announcement coincided with a Commerce Ministry order to importers of U.S. sorghum to post bonds to pay possible anti-dumping duties in a separate dispute. It said preliminary results of a trade inquiry had found that U.S. sorghum, a grain used as animal feed and in liquor distilling, was sold at improperly low prices that hurt Chinese farmers.
In the meantime, limits on foreign ownership of electric vehicle producers will be eliminated this year, the Cabinet's planning agency said. That change will be followed by a similar repeal for makers of commercial vehicles in 2020 and for passenger vehicles in 2022.
"Following a five-year transition period, all ownership restrictions will be lifted," said the announcement by the National Development and Reform Commission.
Until now, such major global automakers as General Motors Co. and Volkswagen AG have been allowed to own no more than 50 percent of a joint venture with a Chinese partner. And they were limited to two ventures.
Foreign automakers complied as the necessary price to access to China's populous market, which passed the United States in 2009 as the world's biggest by number of vehicles sold. Sales of sedans, SUVs and minivans last year totaled 24.8 million units. About 55 percent of them were American, European, Japanese and Korean brands.
Some Chinese-foreign automotive joint ventures go back more than two decades. General Motors, for instance, started its Chinese operations in 1997. It now sells more than 4 million vehicles annually there — more than it sells in any other market, including in the United States.
GM sells vehicles under five brand names in China — Buick, Cadillac, Chevrolet, Baojun and Wuling — and is traditionally among the two top-selling companies there. The company could enjoy a big financial boost if it manages to shed its Chinese partners. Last year, the Detroit company made $1.95 billion off its 50 percent equity stake in China.
It's unlikely that foreign automakers would sever themselves completely from their Chinese partners even after the phase-in period, said Jeff Schuster of the consulting firm LMC Automotive near Detroit.
"It's difficult to unwind; you've already got the relationships established," Schuster said.
But Schuster does envision the U.S. and other foreign automakers reducing the size of their Chinese partners' ownership stakes and separating their intellectual property from those partners.
"You could see (autonomous vehicle) development peel away from the joint venture partner," he said. "It all comes down to balancing your risk over your intellectual property against the cost of developing on your own."
Independent Chinese brands such as Geely, which owns Sweden's Volvo Cars, SUV maker Great Wall and electric car brand BYD Auto, are developing technology and increasing exports.
Geely has bought a nearly 10 percent stake in Daimler AG, becoming the German automaker's biggest shareholder and gaining leverage to push for technology sharing. State-owned Dongfeng Motor Group, which has joint ventures with Nissan Motor Co. and other brands, bought a 14 percent stake in France's PSA Peugeot Citroen in 2014.
"Chinese companies such as Geely and Great Wall have financial power and technology resources," said industry analyst John Zeng of LMC Automotive. "It's not like 10 years ago, when foreign brands had a big technology advantage."
He said the latest shift is part of Beijing's effort to accelerate development of electric vehicles, which have a central role in the ruling Communist Party's industry plans.
China is the world's biggest electric vehicle market, with last year's sales rising 53 percent over 2016 to 770,000 vehicles. Beijing is using sales quotas and fuel efficiency standards to press global automakers to help local suppliers develop battery technology.
A deputy industry minister said in September that Beijing was developing a timetable to join France and Britain in ending sales of gasoline cars.
BYD Auto is the biggest global electric car producer by number of units sold and has a factory in California that produces electric buses. BYD Auto manufactures under its own brand and also has a joint venture, Denza, with Daimler's Mercedes unit.
"Foreign brands will not have as much of an advantage as they had with combustion engines," said Zeng. "More or less, Chinese brands already compete with them on a similar level in electric cars."
The European Union Chamber of Commerce in China welcomed the announcement and said it looked forward to details in a "negative list" promised by Xi. That would lay out which industries are off-limits to foreign investors, leaving the rest of the economy open to competition, instead of the current practice of requiring approval for every activity.
"The European Chamber hopes that this list will be concise to allow much greater participation of foreign enterprise across multiple industries in China," the group's secretary general, Adam Dunnett, said in a written statement.
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