China announced the phaseout of a two-decades-old policy that requires foreign manufacturers share their factory ownership and profits with Chinese companies, the government announced Tuesday. However, financial arms still remain beholden to the joint venture rules.
The National Development and Reform Commission announced that ownership caps will be dropped for companies making fully electric and plug-in hybrid vehicles this year, with commercial vehicle manufacturer caps being lifted in 2020, and the broader consumer combustion engine OEMs following in 2022.
China has limited foreign ownership to 50% since 1994, and last week, the Peoples Bank of China began lifting those restrictions for certain financial institutions. While the government said it’s encouraging foreign investment in auto finance, the caps for the financial arms remain at 50%.
U.S. EV manufacturers such as Tesla could stand to benefit the most in the short term, while other manufacturers will have to wait longer to get the benefits and may find it difficult to get out of existing joint venture agreements, analysts said.
A number of manufacturers including Volkswagen, Daimler, Nissan Motor Co, and Honda Motor Co. signaled they value their current arrangements with Chinese OEMs but will be watching the changes as they progress.
Although the OEMs signaled their commitment to the joint ventures, Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight, told The Wall Street Journal he expects car-making joint ventures would be gone by 2030. Under the new timeline, car manufacturers “have four years to arrange the divorce,” he said.
However, it may prove difficult to accurately assess the value of the Chinese OEMs, and foreign car companies would have to buy them out to effectuate the separation — a price tag many may not be able to afford, Janet Lewis, managing director of equity research at Macquarie Capital Research, told WSJ.
