Planned omission of investment limit: China opens its car market8. May 2018
With a big step towards opening up the Chinese market, the Chinese government has announced the abolishment of the 50 percent rule for foreign companies’ involvement in vehicle manufacturers. The law was introduced in 1994, stating that foreign automakers can not own more than half of the shares of local companies. This forced them to work together with Chinese companies or to form joint ventures. With this arrangement, the government promised improved cooperation and support for Chinese companies. Also, the long-term and sustainable investment of foreign companies and investors should be ensured.
Now it was surprisingly announced to abolish this limitation gradually. This political decision marks a new turn in a turbulent week for Chinese trade. China imposed a temporary punitive tariff on US grain after the United States banned American companies from selling parts to Chinese phone maker ZTE Corporation on Monday. Step by step, companies that produce electric and hybrid cars will first be exempted from the limitation this year. Commercial vehicles will follow in 2020 until finally the complete car market from 2022 will be opened.
Although many, especially German automakers, welcomed this decision, the reaction was rather calm. Many had already invested in joint ventures in the past and had good experiences with them. Not much will change for these companies in the future. However, companies that do not yet produce in China could benefit. Many automakers had to deal with high import duties for new vehicles and components. Tesla, for example, had several times in the past considered to gain a foothold in China, but this has not yet realized. Ford recently announced a $ 756 million investment in the production of electric cars with local partner Zotye Auto. Now is a good opportunity to build a manufacturing facility in China.
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