Will global automakers drop Chinese partners?

Yang Jian is Managing Editor of Automotive News China

SHANGHAI -- Under China's regulations, foreign automakers may not own more than 50 percent of their joint ventures with Chinese partners.

But that may change. Since President Xi Jinping took office early last year, he has repeatedly pledged to shore up China's economic growth by opening up the domestic market.

Heeding the pledge, a spokesman for the Ministry of Commerce said last year that the government would someday relax its 50 percent ceiling on foreign automakers' ownership of their joint ventures.

China, already a World Trade Organization member, is negotiating a series of free-trade pacts.

Trade deals such as the Trans-Pacific Partnership agreement -- under negotiation with the United States and other countries -- eventually could force Beijing to eliminate all restrictions on foreign automakers operating in China.

Now the question is: Will global automakers ditch their Chinese partners if they are allowed to? If BMW accurately reflects the sentiments of global automakers, the answer is no.

The German luxury automaker said this week it had extended its 50-50 joint venture with Brilliance China Automotive Holdings until 2028.

BMW was under no pressure to do so because the agreement wasn't due to expire until 2018. So why did BMW renew the partnership four years before its expiration?

The company clearly has concluded that its joint venture is working pretty well. In the first five months, BMW Group has sold 185,000 units in China, up 25 percent year on year.

China has become BMW's largest global market, yet BMW is still chasing Audi, which remains China's top luxury brand. The most realistic way for BMW to catch up with Audi is to work with its existing partner, rather than break away from it. BMW's joint venture is expanding production and launching new models. Why rock the boat?

In fact, BMW is not the first global automaker to renew a Chinese joint venture.

In 2012, Volkswagen Group extended its joint venture agreements with SAIC Motor Corp. and China FAW Group Corp. until 2032.

BMW certainly won't be the last global automaker to extend its Chinese joint venture. China is a key market for most global automakers. The last thing that foreign automakers want to do is create uncertainty about their Chinese operations. So it is almost certain that other global automakers will follow BMW's example and renew their Chinese partnerships.

You can reach Yang Jian at yangjian@autonewschina.com



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