China opens its car market

For five years, it had announced the Chinese government, but now it actually happens: China is opening its car market to foreign manufacturers and lifting the pressure for domestic companies to do so. So far, international car companies are forced to cooperate with a Chinese partner, who gets thereby insights into their technology.

According to the National Development and Reform Commission, foreign manufacturers will be allowed to operate on electric and hybrid vehicles as early as this year. By 2020, the commercial vehicle market is to be opened and by 2022 the entire passenger car sector will be opened. Since 1994, foreign manufacturers in China have had to work with local partners and have a maximum of 50 percent ownership of the joint venture. And often not even that: Audi, for example, maintains a joint venture with the state-owned carmaker FAW in northern China: 60 percent of the shares are owned by the Chinese.

The foreign manufacturers have so far bowed to the compulsion to so-called joint ventures in order to gain access to the since 2009 largest car market in the world. In 2017, 24.8 million cars were sold in China; American, European, Japanese and Korean brands had a share of 55 percent. Meanwhile, Chinese brands are almost on par with electric cars. Geely, for example – which owns the Swedish Volvo brand and recently became the largest shareholder in Daimler AG at almost ten percent – and BYD Auto. The state-owned Dongfeng Group recently bought 14 percent of the shares of the French manufacturer Peugeot Citroën.

That may be one reason why China’s President Xi Jinping declared an early opening last week. Observers suspect that the opening will fuel the development of electric cars that the Beijing regime is relying on. Bernhard Mattes, top German car lobbyist, welcomed the plans of the leadership in Beijing. “China’s announcement is an important step towards more open markets and a clear sign of free competition, and China should continue on this path of opening its own market.”

The limited market access in China and the outflow of knowledge there are issues in the trade dispute that fueled US President Donald Trump. In Germany, too, one sees the problem, but has so far behaved diplomatically: yet the flowing from China to Germany profits are too large, as that would argue about it. Above all, producers who have not yet been represented in China – such as Tesla – benefit from the abolition of forced cooperation.

The California electric car maker plans a plant in China. Even BMW could be beneficiaries: The Bavarian manufacturer wants to build the electric mini in China and had already largely agreed with the partner Great Wall. Otherwise, however, most western companies are bound to long-term contracts to partners and could use the new freedom for renegotiation if necessary. For example, the VW group, which now sells four out of ten vehicles in China, has the cars built in three joint ventures.

The joint venture with the state-owned manufacturer SAIC from Shanghai runs until 2035; VW is bound to FAW from northern China until 2041. The contracts for the latest joint venture, which VW had recently founded with JAC from Central China for the construction of electric cars, even foresee a cooperation until 2042.

Official rules are one thing – but there are also unwritten laws in China

The assessment at VW is correspondingly reserved. “We will analyze exactly whether this also results in new options for the Volkswagen Group and its brands,” said a company spokesman. “The existing joint ventures will not be affected.” Daimler is similarly overcast. “As we have always said, we are satisfied with our successful setup in China and with our partnerships, and we are, of course, closely monitoring the regulatory development,” states Stuttgart. Daimler cooperates in China above all with the Beijing state company BAIC.

And then there’s the informal need to work with a Chinese company. Officially you do not have to cooperate in many industries, but if you do not do it, the business can be damaged. The chip manufacturer Infineon, for example, founded a joint venture with the VW partner SAIC a few weeks ago to manufacture so-called power modules for electric cars. The know-how comes entirely from Germany, but Infineon shares the profits. Why? The Chinese should act as a door opener and reduce the cost of purchasing, moreover, state companies easily get loans, and the acquisition of building land is then no problem. Without state partners, this can be difficult – despite all the promises of reform.