Foreign companies may not all jump at new regulations. Factories, dealer networks, and suppliers will all need to be resourced for 100% new factories
SUMMARY
On Tuesday, April 19, Chinese leaders announced they will be loosening restrictions on foreign ownership of car manufacturers incrementally through to 2022. Current legislation does not permit foreign car manufacturers to own more than 50 percent of joint ventures with local companies. Chinese President Xi Jinping has also promised to lower tariffs on imported cars by the end of the year. China is the world’s biggest electric vehicle market and its growth is helping support new battery technology. In the past, Chinese car brands have struggled to shake negative reputations regarding their quality. [ANALYST COMMENT: This move may be a reflection of the confidence Beijing has in its automotive industry’s ability to go head-to-head with foreign competitors.] This announcement comes amidst a flurry of new trade restrictions between the U.S. and China.
FAO GLOBAL ASSESSMENT:
This move by the People’s Republic of China (PRC) could be seen as one incentive to United States President Donald Trump to step back from his threatened trade war with China. For car producers outside of China, this could be an important opportunity but one that will require pivoting to the needs of Chinese consumers, many of whom live in multi-generational households with a single child and are increasingly coming into disposable income. Many trucking and logistics companies have expressed desire to open their own factories, but retooling a billion dollar investment from top-car manufacturers should be approached more strategically. There is more to China operations for the top auto manufactures then just opening a factory. If U.S. firms choose to dump their Chinese partners this could have significant effects on dealer networks, distribution lines, and current contracts that have helped build up current capacity.
Related Links
- Business Times – Global carmakers gear up as China opens up sector
- Reuters – China to open auto market as trade tensions simmer
- Boston Globe – China to allow full foreign ownership in auto industry
- Cheung Kong Graduate School of Business – Stuck in First Gear: Chinese Car Manufacturers Struggle to Compete with Foreign Brands
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