Thu, Apr 20, 2017 - Page 11 News List

Lifting foreign caps could ‘destroy’ China’s carmakers

Bloomberg

MG and Roewe passenger cars are displayed at SAIC Motor Corp Ltd’s Lingang factory in Shanghai, China, on Monday.

Photo: Reuters

Chinese state-owned auto giants such as SAIC Motor Corp Ltd (上海汽車) and Dongfeng Motor Group Co (東風汽車) might see billions of US dollars in profits evaporate if the government lifts protectionist measures and lets foreign companies operate without a local partner.

China requires overseas carmakers such as General Motors Co (GM), Toyota Motor Corp and Volkswagen AG to form joint ventures with locals in order to sell their brands in the world’s biggest market.

The policy enacted two decades ago capped foreign investment at 50 percent, helping local brands develop manufacturing expertise while still profiting from sales of foreign brands.

Those alliances seem to be working for domestic automakers, which earned 67 billion yuan (US$9.73 billion) with their partners in 2014, the latest China Association of Automobile Manufacturers (CAAM) statistics showed.

Yet, the government might relax the restriction as it tries to make state-run businesses more efficient and to respond to changes in trade policy being pushed by US President Donald Trump.

“Automakers that aren’t competent enough would be destroyed by the policy change,” China Passenger Car Association secretary-general Cui Dongshu (崔東樹) said. “Rising competition from not only the foreign joint ventures, but also from homegrown makers has been weighing on the weak performers.”

The prospect for lifting the restrictions comes as carmakers meet in Shanghai this week for Asia’s biggest auto show.

Ford Motor Co and Hyundai Motor Co are among the foreign automakers displaying models at the trade show that compete with those produced by local partners.

Less than half the record 23.9 million cars, sport utility vehicles and minivans sold in China last year were local brands.

Market share for Chinese-brand cars has stayed fairly constant, rising from 41 percent a decade ago to 43 percent last year, CAAM data showed.

GM, Volkswagen and Nissan Motor Co all count China as their biggest market by sales volume and they might potentially earn billions of dollars more in profits if they had more control over their Chinese operations.

The market has higher profit margins than the US, Europe and Japan, Bloomberg Intelligence data showed.

Ford CEO Mark Fields said that tangible reforms and opening up are needed in the China car market.

Ford partners with Chongqing Changan Automobile Co (重慶長安汽車) and Jiangling Motors Corp (江鈴汽車).

Daimler AG and BMW AG executives said they are “very happy” with their ventures in China.

“Even if we were totally free to choose, we certainly would continue with a partner in China, perhaps with a different percentage,” Daimler CEO Dieter Zetsche said in a Bloomberg Television interview at Auto Shanghai.

BMW sales chief Ian Robertson yesterday said that the Munich, Germany-based automaker continues to grow in China, which is “really the measure of success here.”

Renault SA Asia-Pacific chairman Francois Provost said at the show that the French automaker’s joint venture with Dongfeng Motor was “doing well.”

BMW has a tie-up with Brilliance China Automotive Holdings Ltd (華晨中國汽車控股), while Daimler has partnered with BAIC Motor Co Ltd (北京汽車).

Some lane changes are already coming. Starting on July 1, car dealers would be allowed to sell vehicles from multiple brands in the same store without first getting clearance from the makers.

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