On December 27, the National Development and Reform Commission and the Ministry of Commerce issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition) and the Special Administrative Measures for Foreign Investment Access in Pilot Free Trade Zones (Negative List) (2021 Edition), which came into effect on 1 January 2022. According to the revised list, in the field of automobile manufacturing, the restriction on foreign ownership in passenger car manufacturing and the restriction that the same foreign company can establish two or fewer joint ventures producing similar vehicle products in China will be abolished. In other words, in the field of complete vehicles, restrictions on foreign investment have been implemented for many years, and all of them will be abolished from January 1, 2022.
All restrictions on foreign investment in the automotive sector have been lifted
In order to protect China's auto industry, the Chinese government has imposed strict restrictions on foreign investment in the automotive industry. First, passenger car joint ventures, the foreign shareholding ratio shall not exceed 50%, and the second is that the same foreign car company can only establish two or less joint venture vehicle enterprises in China.
Looking back, this restriction has played a positive role in the development of China's auto industry. On the one hand, through opening up to the outside world and introducing foreign capital, technology, management and products, it has enriched the domestic automobile supply and met the needs of Chinese consumers. On the other hand, in the process of joint venture, a complete auto parts supply chain was created, laying the foundation for the development of China's own brand cars. At present, in the field of commercial vehicles, China's own brands occupy a dominant position, and in the field of passenger cars, China's independent brands have a market share of more than 40%. Some automotive groups have cultivated talents, technology and management experience through joint ventures, and promoted the development of their own brands.
With the great development of the automobile industry and the rapid growth of China's own brand cars, the state's restrictions on foreign investment in the automotive field have gradually relaxed. In 2018, the foreign equity restrictions on special vehicles and new energy vehicles will be abolished; the foreign ownership restrictions on commercial vehicles will be abolished in 2020; and the foreign ownership restrictions on passenger cars will be completely abolished until 2022, and the restriction on no more than two joint ventures will be abolished. Through a period of several years of transition, all restrictions on foreign investment in China's automotive industry have been lifted.
The impact of liberalizing the share ratio on operating car companies is very small
At present, the vast majority of the operating joint venture vehicle enterprises have smooth cooperation between China and foreign parties, the operation is in good condition, and they have reached the harvest period and become profit cows. Chinese and foreign shareholders receive a considerable profit dividend every year. These well-run joint venture foreign parties are not very interested in increasing the shareholding ratio in the joint venture.
If the joint venture equity ratio between China and foreign parties is adjusted, it will also be subject to the restriction of the cooperation period of the joint venture. For example, GAC Toyota was established on September 1, 2004, and the cooperation period is 30 years. It will only expire in 2034. Guangqi Honda was established on July 1, 1998, by Guangzhou Automobile Group Co., Ltd., Honda Jiyan Industry Co., Ltd. and Honda Jiyan Industry (China) Investment Co., Ltd. jointly invested in the construction and operation of the enterprise according to the 50:40:10 share ratio, with a joint venture period of 30 years. It will only expire in 2027.
Before the expiration of the joint venture period, it is very difficult to adjust the joint venture share ratio. Moreover, the foreign parties of many joint venture car companies have no intention of adjusting the joint venture share ratio. Zeng Qinghong, chairman of GAC Group, told Ichigo that the top management of Toyota and Honda had not raised the issue of the stock ratio to him.
Even if a foreign party wants to increase its shareholding in a joint venture, it must obtain the consent of the Chinese party and spend a lot of money to buy it.
FAW-Volkswagen is a tripartite joint venture, with FAW Group accounting for 60%, Volkswagen accounting for 30%, and Audi accounting for 10%. The foreign party felt that Audi's stock ratio was too low and hoped to acquire a 9% stake in FAW Group. It is said that the three parties have agreed and negotiated the purchase price. Later, due to Volkswagen's "dieselgate" incident in the United States, it was severely punished by the US regulatory authorities, and the funds were tight. It dragged on.
Judging from the current situation, some joint venture car companies that are not operating well are more likely to adjust the joint venture share ratio. Dongfeng Yueda Kia, which has been struggling to operate in recent years, has recently changed its shareholding. Dongfeng Group transferred 25% of its equity to Yueda Group, and the three-party joint venture became a joint venture between the two parties, with the chinese and foreign sides still accounting for 50% of the shares. Previously, it was rumored that Kia wanted to take over the 25% equity transferred by Dongfeng, but because the share ratio liberalization policy has not yet been implemented, it may also be that Kia will acquire some shares of Yueda in the future, which remains to be seen.
After the liberalization of the joint venture share ratio, the first person to increase its stake in the joint venture was BMW. As early as three years ago, in October 2018, BMW Brilliance reached an agreement between China and foreign parties to transfer 25% of the shares of the joint venture to BMW, which will be delivered in 2022. After the closing, BMW holds 75% of the shares of BMW Brilliance and Brilliance holds 25% of the shares.
This equity transaction will be the first case after the relaxation of the restrictions on the auto share ratio. At present, there is no latest news on the change of equity of existing joint venture car companies.
After the liberalization of the stock ratio, new automotive joint ventures have not seemed to be moving at present. First, foreign car companies should come in, and second, some foreign car companies that are not doing well are preparing to withdraw from joint ventures. Third, China's own brand automobile enterprises are becoming more and more competitive, and they no longer need to rely on joint ventures to improve themselves.
The Chinese government has completely relaxed the restrictions on foreign investment in the automobile field, which more reflects China's determination and attitude of opening up to the outside world.
As early as April 23, 2018, I sent a final article entitled: Liberalizing the joint venture share ratio is not a flood beast. The article reads: The liberalization of the auto joint venture stock ratio is not a flood beast, will not impact and affect the profits and earnings of China's own brand cars, and can promote them to develop better and faster in a more open environment. There is no impact on the joint venture vehicle companies that are operating. (End)
This article was published simultaneously on The China Automotive Trend Network