By on December 6, 2013

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The automotive industry lobby group China Association of Automobile Manufacturers is at loggerheads with Beijing over a rule change proposal that would ease restrictions on foreign ownership of auto manufacturing ventures. The fear, according to CAAM Secretary General Dong Yang, is that should the restraining bolt be removed, the local industry would lose control of the joint ventures they currently hold, if not the Chinese auto industry itself.

China’s Ministry of Commerce announced that they are considering relaxing foreign investment rules in the country’s automotive sector. Currently, foreign manufacturers must form a joint partnership with local automakers in order to build their cars for the Chinese market, all in the hope that the locals learn a thing or two about technology and management expertise so that they may, in turn, be competitive on a global scale. On top of this, foreign automakers are only allowed to own up to half of said joint partnerships, a framework that is not mandated for doing business in other countries.

While the ministry sees the current setup as imbalanced, Dong views relaxing the rules would be the difference between life and death, urging Beijing to carefully and deliberately reconsider. Alas, the point may be moot: only 30 percent of Chinese consumers choose the home team when it comes to car ownership.

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9 Comments on “Automotive Lobbyists in China Opposing Rule Change in Foreign Ownership...”

  • avatar
    Polar Bear

    Good. Mandating a local partner was a receipe for well-connected cronies to freeload off foreign companies.

    • 0 avatar

      Maybe so, but you are making assumptions not based on the actual case.
      As far as I know, the Chinese partners of the joint adventures worked very hard to help expansion in the local market, suppressing local (non-joint) manufactures, and enjoyed whatever given them as profit.

      The original idea of the joint adventures was to exchange market for technology, as the state-owned auto manufactures had no interest whatsoever developing their own technology. Case in point, in 1980s there were quite a few models of cars/trucks copied from USSR in 1950s and manufactured for over THIRTY years. The Chinese state-owned makers, along with their foreign partners, enjoyed huge profit over the past 20-30 years (More than half of GM’s profit came from China joint-ventures). but they failed to develop their own technology (again!), because there was no need for them to do so, they simply buy tech from their foreign partner, kill true Chinese manufacture (with own tech) and enjoy their life as subsidiaries of GM, VW, TOYOTA, etc.

  • avatar
    Polar Bear

    If the local partners did useful things, great. Now let us see if they are so useful that foreign companies still want them when they no longer have to.

    • 0 avatar

      Once the joint ventures are no longer a requirement, the local partners will need to demonstrate value (as well as confidentiality etc).

      That said, things would not change quickly for existing partnerships — building new manufacturing capacity is not so quick or cheap. More likely manufacturer-owned factories would come into play when new capacity is added.

  • avatar

    I think what is just as bad is how auto manufacturers are bullied to build it all in China. There are advantages to manufacturing volume in the home market, for the home market. However an auto manufacturer does not necessarily want to re-tool every niche model they created just so it can be sold in China.

    The auto manufacturers are not going to ask for the import taxes and restrictions to be knocked down as not to upset the China government. But our government should!

    There is no reason that we should not be shipping Mustangs, F150’s, Volts, Teslas and the like to China with extremely low import duties when we have such a large trade deficit.

    But instead of focusing on improving the trade deficit we focus on military and social issues with China.

  • avatar

    Or, this might be the government finally doing something about bad loans to some banks. Like Japan in the 80`s, China has protected bad banks in the hopes the loans will turn around, no matter how hopeless. Sooner or later some banks will have to go bankrupt. And some of those bad loans were made to Chinese automakers and suppliers. Letting foreigners buy these companies would help pay off the loans and bail out the banks.

  • avatar

    Whatever the political motivations are, if the end result is that the crony and sub-par suppliers are consolidated as a result, that should be good for everyone: consumers and competitors.

  • avatar

    This should kick the local manufactures in the butt to get there S*** together and make good cars while they still have money coming in.

  • avatar

    If by “learn a few things” you mean outright theft of know-how, then sure…
    I’d much prefer a Mustang (or Verano, or whatever vehicle) made in the USA be sold in any country, especially China. For too long, foreign companies have been hog-tied and bullied into forming less than equal “partnerships” with the Chinese. While this model has worked for the last 30 years, I’m not sure it is sustainable over the next 30 as income parity (relatively speaking) starts to drive manufacturing out of China (and hopefully to a decently noticeable degree, back to the US). We’ll see if the Chinese are serious about opening up their manufacturing to foreign companies without the draconian restrictions and regulations they place on them… but I am not holding my breath.

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