Passenger car stock ratio release shows confidence and confidence

The National Development and Reform Commission and the Ministry of Commerce issued the Special Administrative Measures for Foreign Investment Access (Negative List) (2021 Edition). From January 1, 2022, in the field of automobile manufacturing, the restriction on foreign ownership in passenger car manufacturing will be abolished, and the same foreign company will no longer be restricted from establishing two or less joint ventures in China to produce similar vehicle products. Previously, China has successively liberalized the share ratio of special vehicles, new energy vehicles and commercial vehicles, which means that China's automotive industry will be fully open to the outside world.

The automobile stock ratio restriction policy was formulated in china in the early years based on the low level of development of the domestic automobile industry, the small market size, and the need to bear risks between domestic and foreign enterprises. It has played an important role in introducing foreign capital, technology and talents, balancing the relationship and interests of domestic and foreign enterprises, promoting China's automobile industry from small to large, cultivating a mature supply chain and a modern vehicle manufacturing system, and also effectively promoting the development of multinational car companies in China and the substantial improvement of the scale of the global automobile industry.

However, any policy has its own contemporary limitations. With China's leap to become the world's largest automobile market, the rapid rise of private car companies, and the deepening of opening up, this policy has also shown inadaptability. Especially in the stage of china's economy shifting from the stage of high-speed growth to the stage of high-quality development, many domestic automobile groups mainly rely on joint ventures to obtain profits, and the lack of innovation power has been criticized. Although the state clarified the opening hours of the stock ratio 5 years ago, to this day, many people are still worried about whether China's automobile companies can withstand the impact by completely relaxing the restrictions on the share ratio and joint ventures not exceeding two.

This is certainly understandable, but there is no need to worry too much. The reason is that the liberalization of the shareholding ratio does open up a convenient door for a foreign party to be solely owned in China, or for a joint venture to occupy an absolute controlling position, but whether a foreign-funded enterprise will abandon the Chinese enterprise to develop alone also needs to consider more factors. Excluding the impact of policy restrictions, the structure of the joint venture equity ratio is essentially a measure of the irreplaceable value addition of the Chinese and foreign parties in the joint venture. It is undeniable that the vast majority of the new models and core technologies of the current joint ventures come from foreign parties, but the role of the Chinese side cannot be ignored. Moreover, restructuring and renegotiating under the mature Sino-foreign joint venture model that has been constructed is not completely free of costs and risks. Therefore, the vast majority of foreign-funded car companies will not blindly adjust the proportion of equity in joint ventures in a short period of time.

It should also be noted that after more than 20 years of innovative development, the strength of many car companies in China has long been different from the past. The latest data show that in the first 11 months of this year, the market share of independent brand passenger cars has reached 44.1%, an increase of 6.4% year-on-year, which is a remarkable progress. Although there is still a big gap between independent brands and foreign advanced car companies in terms of bicycle premium, brand recognition and degree of globalization, compared with Korean and French cars, we have actually gained the upper hand. Not long ago, Dongfeng Motor Group Co., Ltd. took the initiative to withdraw its shares from its joint venture with South Korea's Kia, which is very telling. In the field of new energy vehicles, in addition to the wholly-owned Tesla, the new car-making forces represented by "Wei Xiaoli" and the traditional car companies represented by BYD and GAC Ae-Ang have more market competitive advantages than foreign brands in the transformation to electrification.

Automobiles are a highly globalized industry. Without a full competition with international masters, it is difficult for enterprises and industries to be truly forged strong. Based on a good investment environment and huge market potential, the liberalization of the share ratio will undoubtedly attract multinational car companies to increase investment and cooperation in China, introduce more competitive products, technologies and services, and promote the enrichment and upgrading of China's automotive industry chain. At the same time, it will also force Chinese local enterprises to accelerate the pace of deepening reform, strengthen innovation drive, promote industrial change in higher level competition, participate in globalization, and build a new development pattern. (Source of this article: Economic Daily Author: Yang Zhongyang)

Source: Economic Daily