Automaker ownership offer latest China trade gambit

Keith Laing Nora Naughton
The Detroit News

Washington — China’s proposal to allow full foreign ownership of automakers within five years is the latest move in a brewing trade war, potentially ending restrictions that helped keep automakers from the United States and other countries at bay while China’s nascent auto industry developed.

Chinese trade restrictions on things like cars have helped fuel the trans-pacific trade dispute with President Donald Trump, even as the world’s largest auto market promotes electric car development. China’s latest negotiating gambit between the world’s two largest economies would scrap rules requiring global automakers to work through state-owned partners, effectively forcing foreign players to share technology with potential competitors.

Detroit’s two largest automakers, accustomed to doing business in China, appear to be taking the latest proposal in stride. General Motors Co., whose 4 million vehicles sold last year and its 10 joint ventures make it one of the biggest foreign players in China, is showing few signs of parting ways with its Chinese partners.

“GM’s growth in China is a result of working with our trusted joint venture partners,” the company said in a statement. “We will continue to work with our partners to provide high-quality products and services to consumers.”

Ford Motor Co. sold 1.2 million cars in China in 2017. In a statement, the Dearborn automaker said it is “encouraged by the announcement this afternoon from the National Development Reform Commission, which is a clear demonstration of the Chinese government’s commitment to further open the automotive industry.”

This wait-and-see posture by the automakers echoes their relative non-reaction to Chinese President Xi Jinping saying last week China would “significantly lower” tariffs this year. Ford is building its business in China and GM’s history in China dates back some 21 years when it forged its joint venture with Shanghai-based partner SAIC.

And both understand these high-level proposals likely are just opening rounds in a very long game. The sentiment was echoed Tuesday by the White House in its reaction to the latest Chinese proposal, this one issued in a statement by China’s top planning agency — not President Xi.

China has been GM’s No. 1 market for the better part of the past decade, surpassing the U.S. market by wholesales in 2010 and by deliveries in 2012. GM and its joint-venture partners sold more than 4 million China-built vehicles last year — importing just 200 Chevrolet Camaros.

And some of the GM brands that appear to languish in the U.S. have stayed afloat thanks to success in China. Buick’s popularity in the world’s fastest-growing automotive market saved the brand from extinction following the company’s 2009 federally induced bankruptcy. GM’s premium brand sold 1.18 million vehicles in China in 2017, compared to some 219,000 in the U.S.

Buick is also expanding its portfolio in China this week with the introduction of the plug-in hybrid variant of its Velite 6 sedan, to be launched later this year. Buick also unveiled an all-electric Enspire SUV concept. And when Cadillac President Johan de Nysschen set out to turn around GM’s luxury brand a few years ago, he first turned to growth in China. Cadillac grew its volume in China by nearly 51 percent in 2017, driving a record-breaking year for Cadillac’s global sales.

While companies like GM promise to stay the course, it is unclear whether China’s move will mollify Trump and his trade negotiators, who continue to press their case with the Chinese. He has threatened tariff hikes on $150 billion of Chinese goods in response to complaints that Beijing pressures foreign companies to hand over technology.

Charlie Chesbrough, senior economist and senior director of industry insights for Cox Automotive, said China’s move is “welcome news” for the auto industry, whether or not it sways the Trump administration to cool its tariff rhetoric.

“Having to partner with Chinese companies had always been sort of the cost of doing business in China,” he said. “It’s an indication that China is willing to open up their market. This is a move that ends the sort of protectionist stance that China had.”

The White House said it is taking a wait-and-see approach to China’s move to open up its auto industry.

“The president has made it clear that any further illegal trade actions by China are not acceptable, including the unfair targeting of U.S. sorghum producers,” Lindsay Walters, White House deputy press secretary, said in a statement. “While we appreciate that China is recognizing longstanding U.S. concerns about discriminatory practices in the autos, ship and aircraft sectors, we await actual implementation of any policy change.”

Chesbrough said the biggest beneficiary of the change in China’s stance toward auto company ownership is likely to be Tesla Inc. The Silicon Valley battery-electric automaker has been unable to open a factory in China, and China is planning to remove the prohibition for electric car makers as early as this year. Other automakers will also benefit from China’s new openness.

“Any company that is exporting into the China market, it gives them more flexibility as to how they do business,” he said. “General Motors is a big player in China. This opens up the possibility if they want to expand in China, or they want to end some of their joint ventures there.”

Chesbrough said China’s decision does not mean automakers will have to immediately go it alone in China, however. “There’s no need for current partnerships between U.S. and Chinese companies to change a lot, at least in the near term,” he said.

FCA, which sold 222,332 cars in China in 2017 through its joint venture with GAC Group, declined to comment. So did Tesla Inc. and Volkswagen AG. Germany’s No. 1 automaker sold 4 million cars in China last year with its joint venture partners SAIC and FAW.

Shanjun Li, professor of economics and policy at Cornell University, said China is likely willing to open up its auto industry because its domestic manufacturers are on sounder footing after years of being protected from independently owned foreign competitors. Their quality and technology are dramatically improved, so much so that Guangzhou Automobile Group Motor Co. Ltd. plans to begin selling its GAC GS8 SUV in the U.S. market near the end of this year.

Li said it is a “good time” for China to move to open up its auto industry, noting that it might give the Trump administration pause as the potential trade war escalates: “It’s a good gesture on the Chinese government’s part to show the U.S. government that it is willing to cooperate.”

Chinese consumers have a demonstrated preference for American-brand cars made by U.S. companies, he said. The largest automakers in China are GM and Volkswagen, and Japanese brands have been losing market share to both foreign and domestic brands there.

“Chinese automakers are in a much better position to compete with foreign companies,” Li said. “If you look at the quality of the cars, the quality is improving. I think the U.S. government should take this as a very positive action improving relations between the two countries.”