China opens up car market to foreign manufacturers

The Telegraph Auto 5 months ago

Chinese president Xi Jinping has pledged to open up his country’s car industry to foreign manufacturers, improving access to the world’s largest vehicle market.

In a speech seemingly designed to defuse growing trade tensions between the US and China, President Xi said that current controls on ownership of businesses building vehicles in China would be eased.

At the moment, Chinese law requires foreign car makers to set up 50:50 joint ventures, which limit their ability to fully benefit from selling into the nation.

The action on joint ownership of companies, though scant on detail, is significant because until now the rules have limited car makers' appetite for investing in China.

Elon Musk, the billionaire founder of Tesla, has openly complained about current joint venture rules in China, and is in negotiations with officials about what kind of deal his company could seal to build a plant there.

Critics of China have suggested it insists on the partnership arrangements so that its relatively immature car makers can learn from Western and Japanese manufacturers and only to then exclude them from the market.

Visitors to the Beijing car show at the Ford stand

President Xi also signalled that China would lower import tariffs on cars. Currently, cars built overseas but sold in China are hit with a 25pc import duty, while parts for cars coming from abroad face a 15pc charge on top of the 10pc customs duty.

US President Donald Trump has been angered by these import tariffs, tweeting that Chinese-made vehicles face only a 2.5pc levy in America and threatening action on the discrepancy.

China is by far the world’s largest car market, with sales 24.2m vehicles last year - quadruple the amount just 10 years ago. The US, the next biggest market, had 17.3m sales last year.

There is also a burgeoning market for electric vehicles in China as the country tries to tackle its pollution problems. This had led to the Beijing government offering incentives to encourage investment in and development of zero emissions electric vehicles.  

Jaguar Land Rover has established a joint-venture in China

Jaguar Land Rover, BMW, Ford, GM, Daimler, Nissan, Toyota and VW are among the manufacturers with joint ventures in China. Volvo, which is owned by China’s Geely, also has a plant in the country.

Professor David Bailey, a car industry expert at Aston University, said: “The 50pc partnership was to extract as much technology as possible from car makers and this easing off could signal that they have got what they needed now.”

Elon Musk has railed against partnership agreements required in China to establish factories

The push for electric vehicles could also be a major driver behind the policy move. Mr Bailey added: “China could be thinking about bypassing internal combustion cars and pushing for electric vehicles. There has been a lot of speculation about what China could offer Tesla to build a plant there, which could be an indication of the country’s plans for electric.”

The announcements were questioned by analysts at Capital Economics who said President Xi's motives appeared to "portray China as a responsible actor and defender of globalism and free trade... and convince foreign firms and governments that China is entering a 'new phase of opening up'".

"Neither of these narratives are entirely convincing," analysts at the economics group said. "It is true that Trump sparked the latest flare up in trade tensions. But the broader backdrop is that despite gradually opening up in recent decades, China retains much higher tariffs barriers than both the US and EU."

China’s car sector grew at almost 4pc in 2017, a rate unequalled in any other major market, though this is down for an expansion level in the teens a decade.    

Britain's car industry welcomed the prospect of a more open China in a post-Brexit world. Last year exports of UK-built cars to the country rose by almost a fifth.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders,  said the news would "certainly encourage demand for Britain's ever growing range of premium, luxury and sports vehicles".

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