Tue | Sep 29, 2020

Tesla, GM, Volkswagen score as China lifts auto ownership restrictions

Published:Thursday | May 10, 2018 | 12:00 AM
Chevrolet Suburban.
VW Passat

Tesla, General Motors (GM), Volkswagen and other automakers scored a big win last month as China announced plans to lift strict rules requiring foreign car companies to share profits and operations with local firms.

The decision comes after President Xi Jinping recently signalled plans to lower import tariffs and ease ownership restrictions in a move widely viewed as a bid to avert a trade war with the US.

It will likely make it easier for American car companies - not to mention German, Japanese and Korean automakers - to rack up profits in China, the world's largest automotive market. President Trump has been fiercely critical of the country's trade policies and intellectual property handling and has threatened steep tariffs.

China will no longer require foreign automakers to establish joint ventures with local companies to manufacture vehicles in the country. The rule will be phased out within five years.

It's a profound break from the past for China, which, critics say, established the policy to help its domestic auto industry grow up without gaining technological prowess and manufacturing know-how on its own.

Nearly 29 million vehicles were sold in China in 2017. That's about 11 million more than US consumers bought.

The change is excellent timing for California-based electric

vehicle maker Tesla, which has signalled plans to build a plant in China. Under the new rules, the company will not have to share operations with a joint venture partner.

The new paradigm could also lead to greater profits for GM, Volkswagen and other automakers with a significant presence in China, including Ford Motor. GM, for example, sells more vehicles in China than it does in the US.

Despite the financial caps, automakers may be reluctant to chart an immediate change of course. In many cases, they have benefited from strategic partnerships with local automakers, such as GM's deal with a company called SAIC, particularly because of the challenges of navigating China's byzantine bureaucracy.


Difficult process


It may also prove difficult from a legal perspective for automakers to withdraw from current deals.

The American Automotive Policy Council, which represents auto interests, was not immediately available for comment when first contacted.

Chinese state media acknowledged speculation that the changes will hurt Chinese automakers but quoted multiple companies saying they believe it will help, in part because of the country's growing expertise in electric cars.

"It's not something to be afraid of, considering China's strength in technology, capital, management, and talent," Fu Yuwu, head of the Society of Automotive Engineers of China, told China's Xinhua state news agency.