China may relax foreign ownership of auto JVs

China is working on the specific scheme on relaxing foreign ownership of auto JVs, and the scheme is likely to be exposed to the public before the second half of 2018, according to a person who once served at the Development Research Center of the State Council. However, the information was later confirmed as "never heard".

What's more, a more specific reply was from a senior executive of the Development Research Center of the State Council that the scheme on relaxing foreign ownership of auto JVs will be worked out before the National Holiday at the latest, including the definite policies and specific adjustments.

The relaxation of foreign ownership of auto JVs is a mark in the process of China's further opening up. Although the time has not yet determined, it is certain that China will ease the restriction on the ownership of auto JVs.  

The much more explicit policy trend turned out to have immediate effect on relevant companies. It is said that Chinese automakers that have JVs with foreign automakers had discussed the impact of the policy and made preparations as early as at the beginning of this year.    

According to the existing policy of auto industry, the controlling stake of Chinese automakers should be no less than 50%. Provided the restrictions on the foreign ownership of auto JVs was relaxed, foreign-funded companies will be "eligible" to be the controlling stakeholder in JVs and even have the possibility of establishing their wholly-owned companies.

A source from the Development Research Center of the State Council analyzed on Apr. 12 that Chinese auto industry and foreign-funded bear solid foundation in cooperation. In addition, China's domestic automakers have grown mature enough to counter the challenge of their foreign peers. The relaxation of restrictions on auto JVs will not impact too heavily on Chinese domestic automakers.

The relaxation of restrictions on auto JVs had impacted auto firms, especially the ones who co-built JVs with foreign automakers. Dongfeng Group announced before the Spring Festival that the company will focus on the development of its self-owned brand, Fengshen and also accelerate the reform of the state-owned company. It is said that Dongfeng Group's systems of talents and salaries tend to be market-oriented.

Nigel Harris, president of Changan Ford addressed that China's relaxation of restrictions on foreign ownership of auto JVs hasn't exerted any impact on the company by far. However, He Chaobing, representive of Changan's executives, stated that the relaxation will not only impact Changan Ford, but also influence the whole auto industry.

Chinese auto market is so complicated that it would pose great challenge to foreign companies without the cooperation with local partners. Many senior executives of foreign automakers have stressed the crucial role of their Chinese partners.

Some powerful foreign vehicle brands may request to increase the proportion of controlling stake in their JVs. At the same time, some foreign vehicle brands which haven't established JVs in China would require to build up wholly-owned firms. According to Li Yanwei, an analyst in auto circulation industry, since the world's large auto manufacturers have established JVs in China, the structure in the largest auto market has been shaped. Only the automakers become more market-oriented, the auto industry will develop better.