By on December 30, 2011

If you are a car manufacturer, and you haven’t yet lined up your Chinese joint venture, don’t even bother to apply.

This is the message the Chinese government sends to the world in its new Foreign Direct Investment Industry Guidelines, which were released yesterday. These guidelines open more sectors of the Chinese industry to foreign investment, but they effectively close the door to foreigners who want to play in the increasingly overcrowded Chinese car industry.

Automakers have been removed from the list of industries the Chinese government “encourages foreign companies to invest in,” China Daily reports.

Of course this has nothing to do with the fact that growth in the Chinese auto market has come to a crawl, and that industry watchers have long been concerned of too much capacity spread over too many automakers. It’s a green thing.

The Chinese government also is no longer encouraging foreign investment in Chinese large coal-to-chemical operations and manufacturers of polycrystalline silicon. “The restrictions generally apply to industries that have excessively large capacities and that pollute the environment,” Zhang Xiaoji, senior researcher at State Council’s development research center told China Daily. Please practice your environmental responsibility and stay the heck out.

Keeping with the green meme, foreign investments into fuel efficient vehicles are still encouraged.

“Not encouraged” may sound a little oblique, but you get the picture. Nevertheless, Zhang expects that there will be “complaints about transparency in China’s market for foreign investment.” He recommends that his government “should try to provide detailed information about what will be restricted.” Senator Stabenow should wait with going ballistic until that information is available. Message to Stabenow: You constituents GM, Ford and Chrysler are already in and will be delighted to know that the club is closed to new members. Dayna Hart, a Shanghai-based spokeswoman at GM,  expects “the new guideline to have minimal negative impact on GM’s future plans in China,” Bloomberg says.

Speaking of Stabenow, the noise about foreigners being kept out of the (possibly) lucrative Chinese EV market turned out to be premature. A draft version had limited foreign stakes in joint ventures that produce all of the chief components needed in new-energy vehicles to no more than a 50 percent. That language is not in the final version. “All chief components” has been changed to read “fuel cell batteries”. As a foreigner, you can happily set up shop to produce “all of the chief components needed in new-energy vehicles” all by yourself. Only if you want to produce “fuel cell batteries,” you need a Chinese partner, and you can only have 50 percent. More after the promised detailed information has become available.


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14 Comments on “China To Foreign Carmakers: Sorry, We’re Closed!...”

  • avatar

    Now they’ve done it! The invisible hand of the market will deal with them any day now! You just watch! Rush Limbaugh says so! Rush knows! The Austrians told him! You’ll see! Limbaugh bless.

  • avatar

    Apparently my comments are being censored. Looks like the 1 Percenters (and their near penniless fanboyz) are real big believers in “free markets” but when it comes to free speech, not so much.

  • avatar

    SSDD (from the Chinese that is)

  • avatar

    We may see some repercussions from this decision for companies that have been slow to invest in China. Best example is Subaru.

    They’ve been denied their JV with Chery on grounds that they are 16% owned by Toyota and not enough technological transfer. Subaru will obviously need a presence in the Chinese market if its to stay relevant globally. Fuji Heavy Industries may decide to take their partnership beyond the current 16% in light of their poor-outlook in penetrating the Chinese market.

    As far as the Chinese EV market, its only a potentially lucrative because China is willing to spend billions in public money into it. There is no EV market to speak of in China, nor is there really any short-mid term potential of one.

    China wants to be primary supplier for EV components worldwide; which makes sense since they have both lithium and rare-earth natural resources to make those components. The Chinese government cares little about their domestic EV market, they want BMWs, Toyotas, Fords EV/hybrid/PHEV to use Chinese-made parts and sell them globally. They are willing to throw money at it, and car makers are more than happy to take them up on that offer.

    • 0 avatar
      Sam P

      “Subaru will obviously need a presence in the Chinese market if its to stay relevant globally.”

      That’s debatable, especially given that the Chinese car market has most likely been in a bubble during the last few years.

      Manufacturers who heavily invested in the China market (read: GM) will be in much more of a world of hurt than Subaru when Chinese car sales revert out of their current bubble.

      • 0 avatar

        Quite simply, the Chinese car market is the largest in the world. While it may be true we are talking volume terms and not profit terms, it cannot be ignored by any global automotive brand.

        Just as importantly, while the Chinese automotive market may be facing growing pains, it has a long term prospect of growing much farther as Chinese incomes continue to increase. Its big now, its going to get even bigger in the long-term (even as short-mid term prospects seem troubled).

        Yet another element is that Chinese suppliers are starting to become crucial members of the global supply chain. It is not smart to be left out of the world’s largest auto market.

  • avatar

    There are Subaru’s in China, I see them here in Shanghai quite a bit. However doesn’t this somehow violate the entire idea of being part of the WTO?

    Then again doesn’t China violate the spirit of the WTO in damn near everything anyway? It’s pretty obvious greed overcomes principle when it is anything bigger than an individual.

    As for China, what do they do when GM or Toyota or VW or whatever fails as a company and yet remains limping by in China. And a new automotive company comes up to dominate in 20-30 years?

    I think overall this is shortsighted of the Chinese government but I also don’t see many repercussions short term for this move.

    • 0 avatar

      Yes, there are Subarus in China, but without a local JV and local production don’t expect it to grow much farther in China. The Chery-Subaru deal planned on making 150k Subarus for China, which is thrice their current sales there. Sending cars in from Gunma is not a intelligent choice given the strong-yen.

      As far as the WTO, China’s attitude has been ‘take us to court’, more specifically the DSB (dispute settlement body) of the WTO. Which takes years and verdict is largely toothless.

      Which is part of the whole reason why the US added Chinese tire tariffs and China retaliated with automotive import tariffs after the WTO found US in the right. WTO is not a real authority as we think of in the classical sense, it is a way for countries to centrally interface with each other on trade.

      If push comes to shove, there is a trade war. There is a lot of tension boiling between US-China recently, we should be prepared for the possibility of events to escalate.

      • 0 avatar

        The WTO was essentially setup by the powers that be to control world trade. The problem has become as China grows more powerful they have decided it isn’t enough to play the game, they want to own it. When the WTO’s biggest issues were either the US/Europe getting upset at a Newly Industrialized Country doing something they didn’t like or Japan doing some mild dumping in the US it wasn’t really a big issue. Now China is continuously dumping due to slave wages and an ambitious oligarchical government. This will all come to a head once China’s growth bubble collapses but it will require the US to turn away from austerity economics for any of that to make a difference.

  • avatar

    Sounds like China now has more foreign technology than they can steal/digest for now.

  • avatar

    Good thing SAAB just got in under the wire:)

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