Industry, consumers to benefit as competition brings lower prices
After the Chinese government announced on Tuesday sweeping changes to the country's long-standing ownership rules governing joint ventures (JVs) between domestic and foreign car companies, one phrase was widely shared among Chinese auto industry watchers: Welcome to China, Tesla!
The U.S.-based electric car company has been considering the opening of a factory in China for months but has struggled to do so, reportedly due to its reluctance to set up a JV with a Chinese partner as required by the current rules. But with the changes, industry insiders believe, Tesla could finally set up a wholly owned subsidiary in the world's largest market.
In a major move, the National Development and Reform Commission (NDRC), China's top economic planning agency, announced that the country will within a five-year period phase out the 50-percent ownership limit for foreign companies in a JV with a Chinese partner.
According a statement from the NDRC on Tuesday, China will scrap the ownership limit for foreign carmakers in special-purpose vehicle JVs and new-energy vehicle JVs in 2018, in commercial vehicle JVs by 2020 and in passenger vehicle JVs by 2022.
The measures are part of China's broad efforts to further open up the manufacturing sector to foreign investors. The changes will be contained in a new negative list for foreign investment in a number of sectors such as automobiles, shipbuilding and aircraft manufacturing. The list is set to be released by June, the NDRC said.
While it is still unclear when and how Tesla, which has been struggling to produce its first mass-market car - the Model 3s - will move forward with its plans in China, one thing is clear: Tesla is hardly the only car company that will benefit from the new rules.
Industry experts and carmakers said that the changes will have a profound impact on the Chinese auto market and could benefit both foreign and some domestic companies as well as Chinese consumers.
Initial reaction
Several carmakers, both foreign and domestic, have hailed the policy changes as a positive step forward.
BMW Group said that the opening-up measures strengthen the company's long-term development in the Chinese market.
"We believe a more free and flexible business environment will benefit both Chinese and foreign companies in China and the Chinese economy. BMW Group will continue pursuing mutual benefits and win-win solutions with its local partners," the company said in a statement sent to the Global Times.
"We strongly support and welcome China's further move in its reform and opening-up strategy, which enhances confidence around the world in investing in China, and has a positive impact on innovation ability," German carmaker Volkswagen Group said in a statement to the Global Times on Tuesday.
Shen Haiyin, CEO of Beijing-based Chinese new-energy vehicle start-up Singulato, told the Global Times on Tuesday that he welcomes the new policy.
"Undoubtedly, internationally famous automakers such as Tesla will expand their presence in China at a faster pace. But Chinese automakers' competitiveness can be further improved by competing with their international peers on the same level," Shen said.
Wait and see
While many foreign carmakers say that lifting the restrictions on their investments in the Chinese market could provide a lot of opportunities for them, they're taking a wait-and-see attitude at the moment with no immediate changes to their current set-up.
Volkswagen said that it will continue to work together with its current partners to develop their JVs. "There will be no impact on our current JVs. We will carefully examine if there are also new opportunities for Volkswagen Group China," it said in the statement.
BMW also said that its partnership with Brilliance Auto is "longstanding and successful," adding that it "will be committed to continuing and expanding the highly successful BBA joint venture in China."
Japan's Toyota Motor Corp also said that there are no changes planned to its current JVs.
"We don't have any special plans at the moment. We will continue to strengthen cooperation with our partners to continuously push forward our China business," it said in a statement to the Global Times on Tuesday.
Market impact
The changes, which will be phased in over five years, will not have an immediate, major impact on the Chinese auto market. But the shifts will put pressure on some domestic carmakers, according to industry insiders.
With the limits lifted, "new products from JVs will decrease, profits will shrink and talent will leave," He Xiaopeng, founder of smart car start-up X-peng, wrote in a note on WeChat. "The lack of sufficient profit and resources will have a significant impact on proprietary brands," he said.
If foreign carmakers choose to set up their own production facilities in China under the new rules, it will weaken Chinese carmakers' standing in the domestic market because "it will challenge Chinese brands' advantage in cost performance," according to an analysis of the rule changes from online auto market information provider Car Prophet.
The changes will push out some less competitive Chinese brands, said the analysis that was shared with the Global Times on Wednesday.
"As JV ownership limit lifted, limitations on foreign carmakers' development in China would be lifted and create a 'catfish effect' for the Chinese auto industry," it said. "Competition would intensify in the domestic auto market."
However, in the long run, the competition is good for the Chinese auto sector as well as consumers, according to industry insiders.
"Without opening-up, China's automobile industry can never grow up," Shen said. "We are also very competitive and are prepared to compete."
The Car Prophet analysis also said that as more foreign carmakers set up production bases in China, the manufacturing capacity of auto parts producers here will improve.
More important, the new measures are set to benefit Chinese consumers, who will get more options and cheaper prices.
"As the world's largest auto market, China's demand for different car models remains high. Foreign carmakers are bound to roll out more models to boost their product competitiveness in China," Car Prophet said.
Also to be more competitive, "foreign carmakers will lead cuts in car prices and that is good for consumers," He added.
