In a few days, the world’s largest automotive market will be further opened to foreign investment as planned.
On December 27, China’s National Development and Reform Commission (NDRC) announced the 2021 version of its negative list for foreign investment, which mentions that previous restrictions on foreign ownership in passenger car making projects, as well as on the number of joint ventures in China, will be removed.
This is a move that the Chinese government has already previously announced to further open up the local market, meaning that foreign car companies will face a new choice in China starting next year.
On June 28, 2018, the NDRC and China’s Ministry of Commerce released a negative list of foreign investment that said China’s auto industry will be opened up for a transitional period by type.
This specifically includes:
In 2018, the foreign share ratio restrictions on special-purpose vehicles and new energy vehicles will be lifted.
In 2020, the foreign share ratio restrictions on commercial vehicles will be lifted.
In 2022, the restriction on foreign investment in passenger cars will be lifted, and the previous restriction that the same foreign investor can only establish two or fewer joint ventures in China to produce similar automotive products will also be lifted.
For more than two decades, China has had strict restrictions on the share ratios of joint ventures.
The first joint ventures in China, including Beijing Jeep and SAIC Volkswagen, were established between 1984 and 1985.
In 1994, China issued regulations requiring foreign capital to hold no more than 50 percent of the shares in its domestic joint ventures in China.
After China announced in 2018 that it would further open up its auto market, Tesla became the first car company to build a wholly-owned plant in China.
The amount of shareholding determines the voice to the joint ventures. With the new rules in effect, foreign car companies in China will need to decide whether to maintain the status quo or expand their shareholdings in their joint ventures.
Cui Dongshu, secretary-general of the China Passenger Car Association, has previously said that it would be reasonable for one of the parties to withdraw from some of the joint ventures after China’s restrictions on foreign ownership in automotive joint ventures are lifted in 2022.
Some of the joint ventures’ low product competitiveness and slow introduction of new technologies have led to serious losses in their profits against the backdrop of chip shortages this year, Cui said.