China to open auto market as trade tensions simmer

BEIJING/SHANGHAI: China is scrapping a limit on foreign ownership of automotive ventures, representing a major shift from policy in place for more than two decades, even as trade tensions simmer between Washington and Beijing.

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The country will remove foreign ownership caps on companies making fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020 and the wider car market by 2022, China’s state planner said in a statement.

The move marks the latest twist in a see-saw week for Chinese trade. The country slapped a temporary fee on U.S. sorghum on Tuesday after the U.S. banned American companies from selling parts to Chinese phone maker ZTE Corp (0763.HK)(000063.SZ) on Monday.

It also signals the end of a rule put in place in 1994, in which the world’s largest auto market limited foreign carmakers to owning no more than a 50 percent share of any local venture.

The policy was implemented to help domestic carmakers to compete against more advanced international rivals.

Analysts said the main beneficiaries, at least in the short term, would be manufacturers focused on new-energy vehicles, including U.S. electric carmaker Tesla (TSLA.O), which has been seeking to set up its own plant in Shanghai.

Tesla chief Elon Musk last month that China’s tough auto rules for foreign businesses created an uneven playing field as scores of local and international companies compete for a slice of China’s fast-growing market for “green” cars.

Tesla was not immediately available to comment on Tuesday.

Traditional automakers will need to wait longer for any direct impact and could face more risks than opportunities in ditching their joint venture structures, said James Chao, Asia-Pacific chief at consultancy IHS Markit.

“Foreign companies may already be in a box (in China),” said Chao, adding that the joint venture structure was now so ingrained that many might not want to change it.

“While getting a bigger share could be advantageous in terms of boosting profits, they may actually be already too dependent on their Chinese partners to sever those ties.”

Reuters

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