SHANGHAI -- When Chinese Premier Li Keqiang visited Germany last week, BMW and Volkswagen AG each signed deals pledging to invest more in their China joint ventures.
And the German automakers obtained something in return -- the opportunity to gain control of local joint ventures before other foreign peers.
What the Chinese government promised the companies was undisclosed in the statements BMW and VW released under new agreements with their Chinese partners, but the State Council, China’s cabinet, dutifully reported what Li said during his visit on its website.
On July 9, in the presence of Li and German Chancellor Angela Merkel, German chemical giant BASF signed an agreement with the government of south China’s Guangdong province to build a wholly owned petrochemical plant in Zhanjiang city in the province.
On the same occasion, BMW and Brilliance Automotive Group Holdings agreed to expand annual production at their joint venture to 520,000 BMW brand vehicles in 2019. The joint venture, BMW Brilliance Automotive, is now equally held by BMW and Brilliance China.
While BASF will become the first foreign chemical company to operate a wholly owned subsidiary in China, BMW will be first foreign automaker to own “more than 50 percent interest in its local joint venture,” the State Council’s website reported, quoting Li in Germany after the deals were signed.
Like BMW, VW also signed deals with its Chinese partners in the presence of the Chinese premier and his German counterpart, committing to invest more in its China joint ventures.
VW agreed to establish an r&d center at its partnership with Jianghuai Automobile to aid the development of electric vehicles for the Seat brand in China. It also agreed to develop battery-charging infrastructure for EVs and digital services for connected vehicles for its joint venture with China FAW Group.
And the payoff is also significant.
On July 9, speaking on the annual forum in Berlin on economic and technological cooperation between China and Germany, Li disclosed that VW is in talks with China FAW Group on raising its interest in their joint venture, FAW-Volkswagen Automotive. FAW-VW is a 60-40 partnership between FAW and VW.
The next day, after seeing the first product -- an electric crossover -- developed by JAC VW, Li asked about the joint venture’s shareholding structure and was told JAC and VW each hold a 50 percent interest in the company.
“It would be OK if you want to hold more interest, [as] China is advancing a new round of opening to foreign investments including lifting the limits on foreign ownership in the auto industry,” Li was quoted as saying to VW executives by the State Council’s website.
Facing U.S. President Trump’s trade war threats, Beijing announced plans in May to phase out the 50 percent cap on foreign ownership of manufacturing joint ventures in the country.
The Chinese government expects the move to attract more foreign investment to shore up its economic growth.
China is already by far the largest market globally for BMW and VW. And the market is still growing, with overall light-vehicle sales rising 4.6 percent year on year to approach 11.8 million in the first half of this year.
The privileges granted by Beijing to gain control over local ventures ahead of competitors will enable BMW and VW to further expand their share of sales and profits in the world’s largest new-vehicle market.