25/09/2018 – Country focus / China

China: Open for Business?

As China’s economy has flourished and its international influence has gained strength, protectionism has appeared to be one of the nation’s guiding principles for achieving prosperity – but the days of this controversial practice may be numbered. Gemma Kent reports on recent decisions to abolish long-established laws preventing foreign auto firms from operating without a local partner, which have prompted a race between brands striving for a share of the Chinese market.

 

On top of the 25-per-cent tariff on US$34bn-worth of electronics, medical equipment and various other Chinese products that came into effect at the beginning of July, the US government recently earmarked a further US$200bn of Chinese goods on which it wants to impose a 10-per-cent levy, prompting China to accuse the Trump administration of launching the “largest trade war in economic history”.

 

As the tariff battle rages on between the world’s two biggest economies, China is trying to quash its reputation for employing protectionist tactics that make it a difficult environment for foreign firms by approving numerous major investments. These include a US$10bn petrochemicals project by Germany’s BASF – part of a US$23bn wave of foreign investments in the country pledged by various companies recently.

As well as speeding up access for foreign pharmaceutical companies, and committing to easing or removing foreign equity caps in sectors ranging from banking and insurance to shipbuilding and aerospace, China is opening up one of its biggest industries to foreign ownership: the multibillion-dollar automotive sector. 

 

Time for Tesla

 

Since 1994, foreign vehicle manufacturers have been required to form joint ventures with local partners in order to operate in China, with the foreign firm holding no more than 50 per cent of the business. Earlier this year, Tesla’s CEO Elon Musk tweeted that efforts to sell vehicles in China were “like competing in an Olympic race wearing lead shoes” – yet this landscape is set to change. In April, China announced it would be removing the restriction and permitting international companies to take full ownership of their Chinese ventures – news that was welcomed by global behemoths hungry for a bigger slice of the world’s largest car market, where 24.2m vehicles were sold last year. 

 

Ownership restrictions for commercial and traditionally powered vehicles are scheduled to be lifted by 2020 and 2022, respectively, while the cap for electric vehicle (EV) partnerships is expected to be withdrawn by the end of 2018, paving the way for companies such as Musk’s Tesla, which has already signed an MoU to build a wholly-owned ‘Gigafactory’ in Shanghai.

 

The combined car and lithium-ion battery factory will take two years to complete and will reach peak annual production of 500,000 vehicles two to three years later, expanding the US-based company’s global manufacturing capability and insulating it from the import tariffs announced by China in response to those issued by the US. As the biggest EV market in the world, China is certainly a strategically important market for Tesla, which shipped 17 per cent of its 103,000 cars there last year.

 

Sales at stake

 

China is also the biggest market for brands including Audi, BMW and Daimler’s Mercedes-Benz, all of which are set to find it easier to manufacture and conduct business in the country under the new plans. Daimler was recently granted permission to test autonomous vehicles on the roads of Beijing, making it the first international firm to receive such a licence, while Audi has signed a new MoU with telecoms giant Huawei that will focus on “intelligent driving and the digitalisation of services in the vehicle environment,” according to a statement.

 

BMW sold 560,000 vehicles to customers in China last year, more than the US and Germany combined, and is the biggest exporter of vehicles from the US to China – a strategy that is increasingly at risk as the trade war escalates. Considering the German company’s major stake in trade dealings between Beijing and the Trump administration, it is unsurprising that BMW is reportedly gearing up to be the first foreign automaker to take majority control of an existing joint venture in China. According to German business magazine Manager Magazin, BMW is finalising a plan to boost the 50-per-cent stake it has in BMW Brilliance Automotive to at least 75 per cent.

 

Volkswagen will certainly benefit from the new rules in China – a market that is forecast to approach 50 per cent of Volkswagen Group’s entire global sales in the medium term. Indeed, the world’s biggest carmaker already owns stakes in three EV-driven joint ventures in China, including a 50:50 joint venture through its SEAT brand with local company JAC. Ford Motor Company is also using the Chinese market to boost the EV side of its business, having signed a 50:50 joint venture deal with Anhui Zotye Automobile Co. last year.

 

Tit for tat

 

Although it is perhaps too early to predict whether China will see an influx of investment from automotive brands yet to penetrate its newly opened-up market, the sweetening of terms has certainly – for the most part – increased international confidence in Chinese reform. Critics remain sceptical of Beijing’s motives, however, with some claiming that the current trade war was started by China in the first place.

 

“We have seen more progress than in any other 18-month period since the WTO accession [in 2001],” Mats Harborn, president of the EU Chamber of Commerce, told a news briefing in July. “But the sad part is we will not know if China is doing this because of external pressure or because it needs the reforms for its own domestic economy.”

08 Jun 2019

29 Jun 2020

Western China International Expo City, Chengdu, China

02 Jul 2020

New China International Exhibition Center, Beijing, China

12 Aug 2020

National Exhibition & Convention Center (NECC), Shanghai, China

Please reload

Latest issue – Vol 1/20
Lead stories
– Leadership focus
– Old king coal still rules in China
– PwC shows rise in  CEO uncertainty
OFC_IndNetmag0120_sm.jpg
  • Twitter Social Icon
  • Facebook Social Icon

1/2

1/1