Caixin
Sep 20, 2017 07:04 PM
BUSINESS & TECH

China Rolls Closer to Relaxed Ownership Rules for Foreign Electric-Car Makers

China’s government could soon announce changes to let foreign companies own controlling stakes in electric-vehicle manufacturers. Currently, the country prohibits foreigners from owning more than 50%. Photo: Visual China
China’s government could soon announce changes to let foreign companies own controlling stakes in electric-vehicle manufacturers. Currently, the country prohibits foreigners from owning more than 50%. Photo: Visual China

China is expected to relax restrictions on foreign investment in the electric vehicle (EV) industry, further opening up the world’s largest auto market as it tries to promote the technology and clean up the nation’s polluted air.

China now prohibits foreigners from owning more than 50% of any car-making venture, but growing signals are emerging that Beijing may remove that restriction for EV manufacturing. That could even extend to allowing complete foreign ownership of China-based EV manufacturers for foreign companies like Tesla Inc.

Such a move would mark a major break from previous policies aimed at fostering development of China’s domestic car industry. China has tried to develop its own local EV sector as well, but most output has been mediocre so far, and foreign companies largely avoided the space until recently.

The most recent signal that ownership limits might be relaxed came at a press conference on Friday, when Vice Commerce Minister Wang Shouwen said a new policy reducing such restrictions for EV production will be introduced before the end of this month.

In April, the Ministry of Industry of Information Technology (MIIT) said that it hopes for “orderly liberalization of the share quota for foreign automaker investments,” echoing remarks made by Minister Miao Wei a year earlier.

And in June, the MIIT and the National Development and Reform Commission (NDRC), China’s state planner, introduced an exemption that allowed foreign carmakers to form a third China joint venture if that venture makes EVs. Previously, all foreign firms were limited to just two car-making joint ventures.

Bloomberg reported Tuesday that the Chinese government is considering allowing foreign automakers to set up wholly foreign-owned EV businesses within China’s free-trade zones. The story cited industry insiders close to the policymaking process.

An NDRC representative was unable to confirm the report when contacted by Caixin, and said that the NDRC had no new information to release on the matter.

Many foreign automakers have recently formed EV joint ventures with Chinese partners, as they rush to develop that capability in the run-up to a new quota system. The system will require a certain percentage of all companies’ sales to be new-energy vehicles, either EVs or hybrids, by either next year or 2019.

In the first wave of new tie-ups, Anhui Jianghuai Automobile (JAC) and Volkswagen announced China’s first-ever wholly-electric car joint venture, a 50-50 partnership, in June. A JAC staffer told Caixin that even if investment policies change, foreigners would still need to reach agreement with their existing Chinese partners to alter shareholding structures of existing joint ventures. And JAC will not consider giving up its shares, the staffer said.

“However, that’s not to say that (Chinese) companies with less say in their joint ventures won’t make concessions,” the JAC staffer said.

Wholly foreign-owned businesses within China’s free trade zones would also still be subject to a 25% vehicle import tariff when selling their products in the rest of the country, because such zones are technically considered outside of China for customs purposes, said Liu Enzhi, professor at the Tianjin University of Finance and Economics.

China has aggressively promoted the domestic EV industry since 2009 with a range of incentives for both manufactures and buyers, though the results have been mixed due to abuse of many of those policies. The government announced earlier this month that it plans to eventually phase out all production and sales of vehicles that run on fossil fuels.

Contact reporter Teng Jing Xuan (jingxuanteng@caixin.com)

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