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December 18, 2018

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Sino-foreign vehicle ventures are still expanding — for now

China’s decision this year to open its car market wider to foreign automakers continues 40 years of progress in first developing a vehicle industry and then allowing joint ventures with overseas manufacturers.

In 1985, Germany’s Volkswagen was among the first to enter the Chinese market, establishing a joint venture with Shanghai-based SAIC to produce the Santana model. In 1998, US-based General Motors started local production in China and its first Buick sedan rolled off from the production line.

As private auto ownership grew in China, so, too, did the auto industry. China is now the world’s largest vehicle market, with a dazzling array of makes and models vying for consumer attention.

In a dramatic step forward, Chinese authorities announced this year that they would remove the limitations on foreign ownership of domestic passenger car joint ventures in 2022. At present, overseas automakers can’t hold more than a 50 percent stake.

BMW was the first foreign carmaker to take advantage of the new policy, announcing in October that it had reached agreement to raise its stake in Chinese partner Brilliance China Automotive Holdings to 75 percent from 50 percent in 2022.

At the same time, the German automaker also announced a 3-billion-euro (US$3.5 billion) investment in the joint venture’s manufacturing facilities in Shenyang, Liaoning Province. BMW Brilliance will also locally produce an electric sports-utility vehicle, called the iX3, for both domestic and overseas market.

Jochen Goller, president and chief executive officer of BMW Group Region China, said the company “has benefited from the progress of China’s reform and opening-up in the past 20 years.”

“We will see the joint venture producing more car models as well as expand production capacity in Shenyang,” said Zhang Xiaofeng, an independent market analyst. “It marks an extension of its business and may result in an increase in income and profits.”

Other foreign automakers are expected to follow BMW’s lead. Bloomberg reported earlier this month that German carmaker Daimler is considering increasing its stake in its joint venture with Chinese automaker BAIC Motor Co to at least 65 percent from 49 percent. Both Daimler and BAIC declined comment on the speculation.

Joint ventures have proven beneficial for both sides. They gave foreign automakers a door into the China market and gave domestic carmakers exposure to overseas technology and innovation in auto production. With foreigners no longer required to hook up with a Chinese partner to do business in China, will joint ventures subside in the future? There’s certainly no sign of that yet.

On the contrary, Deloitte China Auto Consulting Leader Andy Zhou, told Shanghai Daily there has been a “rising trend of cooperation between Chinese and foreign auto companies.”

Those relationships are focusing on research and development, localization of car models, new technology tracking and application, green vehicles, autonomous driving and intelligent vehicles.

For many foreign companies, China is a good testing ground for innovation because consumers here tend to be more enthusiastic and accepting of new concepts, such as new-energy vehicles and autonomous driving.

To some extent, foreign automakers need to cooperate with Chinese partners to keep their leading positions in the market and maintain competitiveness.

Volkswagen and its Chinese partner Anhui Jianghuai Automobile Group Co are expanding their cooperation in electric vehicles. The joint venture is going to produce vehicles under SEAT brand and establish a research and development center to focus on areas such as connectivity and autonomous driving.

In September, Ford Smart Mobility, a wholly owned subsidiary of Ford Motor Co and Zotye Automobile, a Zhejiang-based privately owned enterprise, formed a 50-50 joint venture to focus on providing customized and smart electric vehicles to ride-hailing operators and drivers in China.

“In the future, we will see more ties between foreign carmakers and their Chinese partners in emerging areas of the industry,” said analyst Zhang.




 

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