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). According to the new version of the negative list, from January 1, 2022, China will lift the restriction on foreign ownership in passenger car manufacturing and the restriction that the same foreign company can establish 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. According to the Special Administrative Measures for Foreign Investment Access (Negative List) (2018 Edition) issued in June 2018, the restrictions on foreign investment in the automobile manufacturing industry have been implemented for a three-year opening transition period. Among them, the restriction on the share ratio of special vehicles and new energy vehicles will be abolished in 2018, and the restriction on the foreign ownership ratio of commercial vehicles will be abolished in 2020, and the restriction on no more than two joint ventures will be abolished. In 2022, the passenger car joint venture share ratio restriction was officially "opened" after 27 years of implementation, which means that China's automotive industry will be completely open to the outside world.
In the early years, the shareholding ratio restriction policy was mainly due to the fact that the development of the domestic automobile industry was still in its infancy, the market size was not large, and domestic and foreign enterprises bore greater risks to each other. The policy plays an important role in introducing foreign technology and capital, balancing the relationship and interests of domestic and foreign enterprises, and cultivating a mature supply chain and vehicle manufacturing system, and also promotes the development of multinational car companies in China and the substantial improvement of the scale of the global automotive industry. According to First Financial Economics, under the industrial policy of market for technology, foreign car companies have entered the Chinese market through the establishment of 50:50 joint ventures with large domestic automobile groups. The profit feed of the joint venture has enabled the domestic automobile company to get rid of losses, have funds to invest in autonomous passenger cars, and bear the continuous losses of the autonomous passenger car business.
Lawyer Li Song of Beijing Kyoto Law Firm said that in the nearly 30 years after China set a ceiling of 50% on foreign ownership in 1994, the policy played a great protective role for the domestic automobile industry and also facilitated the rapid development of domestic car companies. However, competition is more conducive to the survival of the fittest and the removal of fake sperm. Liberalizing the foreign equity ratio will help stimulate market vitality and promote the reform and adjustment of domestic car companies through competition, thereby promoting the upgrading of the entire industry.
Now that the shareholding ratio is fully liberalized, although it is more convenient for foreign parties to occupy an absolute controlling position in China and joint ventures, whether foreign-funded enterprises will abandon the independent development of Chinese enterprises needs to consider more factors, and the joint venture share ratio structure is actually a measure of the irreplaceable value of Chinese and foreign parties in the joint venture. Restructuring and renegotiation under the mature Sino-foreign joint venture model that has been constructed is not completely free of costs and risks.
On December 29, according to the Economic Observer Network, after the liberalization of the shareholding ratio restriction, the equity change of the joint venture company attracted attention mainly because the traditional joint venture car companies have always been the "profit cows" of domestic auto groups, and at the same time, based on the huge scale and sustained growth potential of China's auto market, foreign parties also regard Chinese joint venture companies as an important profit output platform. It can be expected that with the official liberalization of equity restrictions, the equity competition of the joint venture parties may be concentrated.
From BMW Brilliance set off a "share ratio battle"
In 2018, under the joint venture agreement signed in Shenyang by BMW Group and Brilliance Automotive Group to further expand the scope of cooperation, BMW Group will acquire a 25% stake in bmw Brilliance Automobile Co., Ltd., a joint venture between the two parties, for 3.6 billion euros. This means that the BMW Group's shareholding in the joint venture between the two parties, BMW Brilliance, has been expanded from 50% to 75%, thereby expanding its control. BMW will become the largest shareholder of BMW Brilliance and the first multinational luxury car brand to hold a joint venture car company.
In addition to the adjustment of the shareholding structure, BMW Group and Brilliance Automotive Group will further extend the joint venture agreement of BMW Brilliance until 2040. Crugg, Chairman of the BMW Group, once said: "We will continue to implement the BMW Group's development strategy in China. Through continuous investment, as well as R&D and production in the field of electric vehicles, we firmly believe that the Chinese market is an important market for sustained business growth. ”
Taking bmw group's equity increase in the BMW Brilliance joint venture company as an example according to the agreement, the biggest impact of the foreign equity increase on the Chinese side is to lose the corresponding proportion of profit division rights. According to public information, in 2019, Volkswagen Group generated an operating profit of 4.4 billion euros (about 32 billion yuan) from two joint ventures in China. According to the proportion of equity, the profits obtained by the Chinese FAW Group and SAIC Group from Volkswagen's joint venture in China are at least higher than volkswagen's 32 billion yuan. If it is estimated that foreign investors generally increase their equity by 15%-25%, China will lose about 10 billion to 16 billion yuan in profits. In 2019, BMW Brilliance brought a net profit of 7.626 billion yuan to Brilliance AutoMotive Group, and if bmw group's equity is increased to 75%, then brilliance automotive group net profit will be reduced by at least 3.8 billion yuan.
For example, in 2020, the net profit of Baihai Automobile Group (HK1958) has reached nearly 13 billion yuan, according to the data of previous years, the contribution rate of Beijing Benz under BAIC Group is about 90%, which means that the net profit contributed by Beijing Benz is likely to exceed 10 billion. If the equity of foreign Mercedes-Benz is increased by another 15%-25%, the profit of the Chinese BAIC Group will be reduced by 3 billion to 5 billion yuan.
By analogy, once the equity of the Chinese and foreign parties in the joint venture car company increases by 15%-25%, the profits that the Chinese shareholders may lose range from as little as a few billion to tens of billions. The same is true of Japanese joint ventures such as Honda, Toyota, and Nissan. In the face of such huge profits, the competition between the Chinese side and the foreign side of the joint venture car company may begin.
On January 4, according to the latest news from the Economic Observer Network, according to the above-mentioned agreement signed by BMW Group and Brilliance Automotive Group in 2018, by 2022, BMW Group will complete the 25% equity acquisition. However, now that the agreed time has passed, and on January 1 this year, the restrictions on the foreign ownership ratio of China's passenger car companies have been relaxed, but bmw's increase in BMW Brilliance has not moved so far. On December 31, 2021, BMW Brilliance insiders said in an interview with the media that due to the equity involved, this question is more suitable for shareholders to answer. BMW China replied that there is currently no content to share. According to the current data of Qixinbao, the equity of BMW Brilliance has not changed, and it is still 50% of Brilliance and BMW.
The industry's view is generally that BMW's increase in BMW Brilliance has not landed in the expected time, and the biggest reason may be that BMW Brilliance's shareholder, Brilliance Group, is still in the stage of bankruptcy reorganization. Due to the debt storm, Brilliance Group entered the bankruptcy reorganization process in November 2020, but until now, the restructuring plan has not been released for a long time, and it has been postponed twice until June 3, 2022. The repeated postponement of the draft reorganization plan has added a lot of uncertainty to Brilliance's bankruptcy reorganization, and it is also believed that it may affect the process of BMW's increase in BMW Brilliance's equity.
However, at the beginning of Brilliance's bankruptcy, BMW made it clear that its increase in shares in BMW Brilliance, a joint venture in China, would not be affected by the debt problems of the latter's parent company, Brilliance Auto Group. At that time, foreign media quoted a BMW representative as saying that "there is no indication that the validity of these (equity adjustment) contracts will be limited by the current situation." The operations of the BMW Group and its joint venture BMW Brilliance are not directly affected by the difficulties of debt payment of the Brilliance Automotive Group. "The increase in holdings will not be affected by Brilliance's bankruptcy reorganization." The above-mentioned BMW China insider still said this to the media on December 31, 2021.
It is worth noting that as BMW's assistance to Brilliance's bankruptcy and restructuring, BMW's acquisition of Brilliance Automobile Manufacturing Co., Ltd. (hereinafter referred to as Brilliance Manufacturing) is not going well. In December 2021, some media quoted a statement from an insider of Brilliance Group as saying, "The acquisition of bmw by the Zhonghua (Brilliance's own brand passenger car) factory has been stopped, and the BMW-related staff in the Chinese workshop has been withdrawn." However, BMW China said in an interview with the media that BMW will continue to promote this project in accordance with national policies.
Zhang Xiang, an analyst in the automotive industry, said that after the liberalization of the stock ratio and the expiration of the contract of the joint venture car company, the foreign party will have a lot of right to speak, and the chinese side's right to speak will decline. In addition to BMW Brilliance signing the contract again in the first two years, the foreign equity ratio increased from 50% to 75%, and the right to speak increased. There are also joint venture brands such as Volkswagen and Toyota that have large sales and high profits in the Chinese market, and they must reduce the chinese shareholding ratio, so that they can make more money and more profits. People like Daimler and BAIC also need to increase their share ratios.
Of course, not all foreign-funded enterprises can enjoy the dividends of the policy. Some niche brands, such as Suzuki, Citroën, Mazda, etc., and even some joint ventures have been shut down. For example, Suzuki withdrew from the Chinese market, and FAW Mazda has been merged into Changan Mazda. This is a process of survival of the fittest and industrial optimization.
Eliminate accelerators for backward production capacity
After nearly two years of market turmoil and reshuffle, for some joint venture car companies that are not in a good state of survival, the change of equity is also happening, and even the shareholders are busy withdrawing. For example, at the end of last year, Dongfeng Yueda Kia "scattered", Dongfeng officially announced its withdrawal, and the previous dissolution of Dongfeng Renault, Dongfeng Yu Grand Rectification, and the integration of North and South Mazda, etc., are all performances of the joint venture party's timely stop loss. In addition, for Beijing Hyundai, Changan Ford, DPCA, etc., which have performed relatively weakly in recent years, the equity aspect is also considered to be adjusted.
In November last year, after nearly 20 years of the joint venture, Dongfeng Motor Group decided to officially sell its 25% stake in Dongfeng Yueda Kia. On December 21, this equity was auctioned by One of the shareholders, Jiangsu Yueda Automobile Group Co., Ltd., for 290 million yuan, but this year's share ratio restriction is abolished, and this part of the equity may be transferred to Kia's name, then the shareholding ratio in the joint venture will also become Kia 75% and Yueda 25%.
In 2013, Dongfeng and Renault formally signed a joint venture contract for Dongfeng Renault Automobile Co., Ltd., each holding 50% of the shares, trying to further develop the "Golden Triangle" strategic cooperation of "Dongfeng-Renault-Nissan", and in 2020, Renault will transfer 50% of all its shares to Dongfeng Group.
At the end of last year, the Anti-Monopoly Bureau of the State Administration for Market Regulation published the "Changan Mazda Automobile Co., Ltd. Acquisition of the Equity of FAW Mazda Automobile Sales Co., Ltd.", showing that Changan Mazda will acquire 100% of the equity of FAW Mazda held by FAW Group and Mazda for equity and cash consideration. Upon completion of the proposed transaction, FAW Mazda will become a wholly-owned subsidiary of Changan Mazda.
Automobile is a highly globalized industry, without full "training" in the global market, it is difficult for industrial development to make a real breakthrough. 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.
Zhang Xiang believes that in general, the liberalization of the stock ratio will improve the concentration of the industry and is also an accelerator for eliminating backward production capacity. Now some backward production capacity in China, such as Lifan, Zotye, Haima, etc. have been out, and some are special treatment. But there are also some excellent companies, such as BYD, Geely, SAIC and so on. Good companies will become stronger and stronger, can compete with international car companies, is conducive to the development of China's local car companies, at the same time, China's local suppliers will also benefit. Domestic car companies are stronger, and many will also give priority to chinese local suppliers. Like the ideal car, priority is given to the purchase of domestic horizon chips, replacing the imported Mobileye's self-driving chips. This is good news for domestic industrial chains and parts suppliers. Because in the past, foreign-funded enterprises and joint ventures gave priority to imported parts and components.
Stimulate market vitality and promote industrial upgrading
Zhang Xiang, an analyst in the automotive industry, said: The liberalization of the stock ratio is a gradual process and has a significant impact on China's automotive industry, but the changes will not be immediately reflected in 2022. Because the automotive industry has a large investment and a long return on investment cycle, joint venture car companies usually sign contracts with a relatively long time, such as ten years, fifteen years, etc. In addition, passenger cars and commercial vehicles are two completely different fields, in the passenger car field, the sales share of joint venture car companies in the Chinese market is more than 60%, and the number of independent brands is only 40%. In the field of commercial vehicles, local brands account for 80%, and joint venture brands account for only more than 10%.
In the field of passenger cars, China's automotive industry is now undergoing new energy transformation, and the accumulation of Chinese brands in the new energy level is ahead of foreign countries. Then, after the liberalization of the stock ratio, the market share of China's own brands will increase within ten years. Coupled with the efforts of some excellent domestic car companies, such as bydd, Geely, SAIC led by traditional car companies; like Weilai, ideal, Xiaopeng led by the new force car companies; like Baidu, Millet and other cross-border car companies, the future will certainly be able to help Chinese brands market share of more than 50%. Within a decade, the liberalization of the shareholding ratio policy will promote the growth of the passenger car market share of local Car Companies in China and surpass that of joint venture car companies and foreign car companies.
In the field of commercial vehicles, after the liberalization of the share ratio, more foreign-funded enterprises will be willing to invest in China to build factories. Foreign large commercial vehicles such as Volvo and MAN, such as some high-quality commercial vehicle companies that do heavy trucks and buses, can introduce excellent technology to China. In the past, the sales of commercial vehicles of Chinese local brands were higher because of the lack of domestic purchasing power before, but in fact, the safety and longevity of Commercial Vehicles of Chinese local brands were not as good as those of imported commercial vehicles. Now that China's economy is developing at a high speed, its purchasing power has been greatly improved, and there are conditions to buy high-level commercial vehicles. Zhang Xiang predicts that in the field of commercial vehicles, within nearly a decade after the liberalization of the stock ratio, it may expand the share of foreign car companies in the Chinese market, after all, the original base is very low. Heavy trucks such as Volvo and MAN have built factories in China, and through the acquisition of domestic car companies, the share of foreign brand commercial vehicles in the Chinese market will definitely increase in the future.
Beijing Kyoto Law Firm - Lawyer Li Song suggested that in the process of innovation, domestic car companies also need to pay attention to a series of legal issues such as intellectual property protection. In recent years, the number of lawsuits in the automotive industry in intellectual property rights and competition disputes has always maintained a rapid growth trend, in the process of independent innovation and research and development, it is recommended that domestic car companies strengthen professional layout planning, strengthen the implementation of patent layout, strengthen patent layout optimization, real-time attention to technological improvement and patent re-layout, in order to maintain the core competitiveness of car companies, to cope with more fierce competition and challenges.