Will China Demand Technology Sharing For EV Market Access?
In order to produce and sell cars in China, foreign firms are required to form joint partnerships with a Chinese firm. With a ten-year, $15b government EV stimulus in the works, automakers are complaining that a requirement to build EVs in partnership with Chinese firms amounts to government-mandated barrier to market access. A foreign automaker executive complains to the Wall Street Journal that the draft version of the government plan is
tantamount to China strong-arming foreign auto makers to give up battery, electric-motor, and control technology in exchange for market access… We don’t like it.
China’s automotive market is projected to grow faster than most, and with $15b of government assistance, the Chinese government has a big carrot with which to tempt foreign firms into sharing their technology. But the backlash is already building…
After all, China’s efforts to force foreign firms to trade technology for market access are not unique to the auto business. Just this past July, the US Chamber of Commerce complained that China was
forcing foreign technology companies to anguish over balancing today’s profits with tomorrow’s survival
across a number of market sectors. Nor is China the only market playing the technology-for-access game. Russian president Vladimir Putin has made no bones about the fact that he will restrict market access to those firms that make with sufficient investments and technology sharing. And with China aiming to create three-to-five Chinese players in the global EV game, it’s intentions are as clear as Russia’s. The only possible solution, according to the OEMs?
We need to make sure we have a contract or agreement that allows us to continue to own and control the technology, even though we might be a minority stakeholder
With mature markets in the US and Europe showing few signs of runaway growth, China and Russia are trying to leverage their healthy demand into future competitiveness in production. Whether the OEMs play ball in order to sell EVs in China, where electric cars have no record of sales success, or in Russia which exhibits far less potential for overall growth, remains to be seen. Either way, expect trade tensions to play an increasingly important role in the global car business going forward.
More by Edward Niedermeyer
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I had read the article in the WSJ, and shook my head. I agree with the Contrarian that the WSJ has been sleeping. If you want to build a car, any car, in China, you need to enter a joint venture. 50/50 is fine, 51/49 not a requirement. And you can agree separately how the profits are divided. This is old and ancient hat.
If you want to build just parts, you can just go ahead and start your own, 100% foreign owned company. No joint venture needed. The WSJ is confused. They should have read the "Catalogue of Guidance to Foreign Investment" first. The "Manufacturing of complete automobiles" by foreigners is "encouraged" with the proviso that "foreign investments shall not exceed 50%." The manufacturing of "automobile engines", "key spare parts", the "production as well as research and development of automobile electronic devices" can be done 100% under foreign control. The rules expressly specify that the manufacture of "power cell (NiH and Li-con) and control systems" is limited to equity joint ventures, fuel cells don't need a JV. These rules have been in place since 2007, a heartfelt "good morning" to those who just woke up to it and complain. And a big "boooh" to the Wall Street Journal that can't do the most basic forms of research anymore.
In China R&D = Receive & Duplicate