China Will Abandon Barriers For Foreign Automakers

Barely a week after Chinese President Xi Jinping mentioned easing barriers for foreign automotive firms during a widely publicized speech, China's National Development and Reform Commission said Tuesday that it would phase out requirements that foreign auto makers must share factory ownership and earnings with local Chinese firms by 2022 - a step toward market liberalization that President Donald Trump will likely tout as evidence his aggressive trade policies are working.

The phase-out will unfurl in stages: Limits on foreign investment for companies building new energy vehicles, a term covering electric cars powered by batteries or fuel cells, will be removed this year. Limits on those building commercial vehicles and passenger cars will be lifted in 2020 and 2022, respectively.

In five years, the commission says, no foreign car company will need to have a joint venture with a Chinese firm, which would sunset a restriction on the industry that has been in place since 1994.


Presently, China forces foreign car makers to set up 50-50 joint ventures with Chinese partners if they want to produce cars locally. Meanwhile, imported cars get hit with a 25% tariff, per the Wall Street Journal. Chinese Vice Premier Liu He - considered the country's economy czar - mentioned that China was planning to lower barriers for foreign firms, including automakers.

Of course, it will take years for the impact of this decision to be felt by US car manufacturers - and even then, benefits could be meager. However, the decision is widely seen as a boon for Tesla - with Quartz claiming that China "just rolled out the welcome mat" for Tesla.

Last year, media reports surfaced citing anonymous sources that Tesla was on the verge of a deal to open a wholly-owned factory in one of Shanghai's free-trade zones.

However, the Chinese quickly denied these reports. And as of now, Tesla appears to have no plans to build the factory.

Thanks to the government's insistence that Chinese consumers stick with electric vehicles, Teslas have become unusually popular among wealthy Chinese. Indeed, after the US, China is the company's biggest market.

Some analysts hailed the phase-out as a major boon for foreign automakers...

"This will completely change the situation in China within 10 years," said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight.

...While others were less enthusiastic.

"We have no plan to change our investment ratio," said Keitaro Nakamura, a China-based spokesman for Honda Motor Co. , which operates joint ventures with local auto makers Guangzhou Auto and Dongfeng Motor Co. "If we had this option 20 years ago when we were first coming into the market, we might have thought differently. But we’ve been working with them for two decades."

One analyst projected that most of China's joint ventures, including ventures involving General Motors and Ford that have been criticized by Trade Representative Robert Lighthizer, would be gone by 2030.

To be sure, autos are a major factor in the simmering trade feud between China and the US. A trade investigation authorized by Trump last summer surrounding China's siphoning of valuable intellectual property from US firms confirmed that China was forcing foreign automakers to transfer technology to local partners.

And China, of course, recently threatened to slap new tariffs on US cars.

Expect President Trump to weigh in on China's latest "market liberalization" soon. Though we imagine China will be waiting to poke holes in any claims the US president might make.