China’s Auto Industry: Foreign Ownership Limits Scrapped

By Alexander Chipman Koty

China has announced that it will eliminate ownership limits on automotive enterprises by 2023, allowing foreign investors to establish wholly foreign-owned enterprises (WFOEs) in the industry.

According to the National Development and Reform Commission, ownership limits on new energy vehicles (NEVs) will be scrapped this year, commercial vehicles by 2020, and passenger vehicles by 2022. By 2023, all other ownership limits on autos will be eliminated.

China will also remove ownership limits in the shipbuilding and aircraft industries later this year.

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Currently, foreign investors in the auto industry must establish a joint venture (JV) with a Chinese partner to enter the market. Foreign car companies like Ford, General Motors, Volkswagen, and BMW all have joint ventures in China, though some upstarts like Tesla have not yet established factories there.

Last year, China lifted some ownership restrictions on electric vehicle manufacturing and related industries, but many observers were disappointed by their limited scope. However, in August the State Council released directives urging relevant ministries to promote foreign investment in NEVs, which suggested further liberalization was in development.

China is the world’s largest auto market, with 24.7 million passenger car sales and 3.7 million truck sales in 2017. The industry has been slowing after years of rapid growth, however, having grown only three percent in 2017.

Despite China’s protection of its domestic auto market, the country is struggling to develop globally competitive brands. Some of its biggest brands are GAC, Great Wall, Volvo owner Geely, and BYD, which develops electric cars.

Still, China has ambitious plans to become global leaders in the next generation of autos. The government offers generous incentives to NEV companies, and Chinese internet giants such as Baidu are investing heavily in self-driving car technology.

China is already the world’s largest NEV market, selling 777,000 NEVs in 2017, representing 53 percent year-on-year growth. By 2025, China aims for NEVs to constitute 20 percent of all vehicle production and sales in the country.

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The announcement comes just over a week after Chinese President Xi Jinping’s opening speech at the Boao Forum for Asia, where he pledged that China would reduce tariffs on foreign auto imports and hinted at scrapping ownership limits in the industry.

The decision also comes amid ongoing trade friction between China and the US, as the two countries continue to head towards a trade war. Tariffs and investment limits in the auto industry have been a sticking point for US President Donald Trump in his criticisms of China’s trade practices. However, Chinese government spokespeople stated that the liberalization of the auto industry was pre-planned, and not done in response to Trump’s threats.

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