author: Eric Walz

China said it will end foreign ownership caps on local auto companies by 2022 and will remove restrictions on new-energy vehicle (NEV) ventures this year, a major shift that will open the doors to one of the world's largest automotive markets to foreign carmakers such as Tesla.

China's state planner said in a statement on Tuesday that the country will remove limits on companies making full-electric and plug-in hybrid vehicles in 2018, commercial-vehicle companies in 2020, and the wider passenger vehicle market by 2022.

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

Tesla & BMW want to build factories in China

The restrictions have limited Tesla's planned China assembly plant. Last year, Bloomberg reported that Tesla had already secured approval from the Shanghai municipal government to operate the planned facility in the region's free-trade zone and it seemed like Tesla's China factory would become a reality.

However, Tesla and Shanghai officials have disagreed about the ownership of the proposed electric car factory. The Chinese regulations were reportedly firm on their rule of requiring foreign car makers to engage in a joint venture with a local firm. Tesla, however, was opposed to the idea and wanted to retain sole ownership of the facility.

Germany's BMW, which has a big stake in trade relations between Beijing and Washington as the largest exporter of vehicles from the United States to China, welcomed the car decision. BMW has partnered with China's Great Wall Motors and wants to built the new electric MINI in China.

"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 Great Wall Motors.

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

Tesla chief Elon Musk said last month that China's tough auto rules for foreign businesses created an uneven playing field as scores of local and international companies compete for a slice of China's fast-growing market for "green" cars.

The looser rules are likely to raise pressure on China's car makers.

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.

Chinese automakers may already be comfortable with the current structure. The joint venture structure was now so ingrained that many automakers might not want to change it.

"While getting a bigger share could be advantageous in terms of boosting profits, they may actually be already too dependent on their Chinese partners to sever those ties" Chao said.

Increased competition for GM?

The move might increase competition for General Motors in China if its competitors set up manufacturing plants in the less-restrictive market. As one of the world's biggest automakers, GM has already established successful partnerships with Chinese companies. GM has ten joint ventures and two wholly owned foreign enterprises as well as more than 58,000 employees in China.

GM, along with its joint ventures, offers the broadest lineup of vehicles and brands among all automakers in China. Products are sold under the Buick, Cadillac, Chevrolet, Baojun, Wuling and Jiefang nameplates. General Motors and its joint ventures sold more than 4 million vehicles in China for the first time in 2017.

A senior General Motors executive said last week the U.S. carmaker, even without ownership caps, would not cut ties with local partner SAIC Motor Corp. GM would not be as successful in China on its own.

In a statement on Tuesday, GM said its growth in China was "a result of working with our trusted joint venture partners. We will continue to work with our partners to provide high-quality products and services to consumers."

SAIC General Motors Sales Co., Ltd. is a joint venture between GM China and SAIC that was established on November 25, 2011. GM China has a 49 percent stake and SAIC a 51 percent stake.

Other automakers are encouraged by the news.

A Ford Motor Company spokesperson said the automaker was encouraged by the announcement and looked forward to learning more. While Japan's Nissan Motor Co said it would monitor developments and plan accordingly.

The highly symbolic moves in autos come after President Xi Jinping said last week the country would scrap ownership limits "as soon as possible," exciting global auto brands even as China and the U.S. clash over other trade tariffs.



