China may relax rules for foreign EV makers

Bloomberg News

China is discussing a plan to allow foreign carmakers to set up wholly owned electric-vehicle businesses in its free-trade zones in a major revision of a fundamental principle governing the country’s auto industry policy since the 1990s, according to company officials briefed on the matter.

The plan, which is subject to change as a final decision hasn’t been made, could be put in place as early as next year, the people said, asking not to be identified as the deliberations are private. If the policy takes effect, it would be a landmark departure from the existing rules, which require foreign automakers to set up joint ventures with local counterparts.

A relaxation of the joint venture rule would give companies like Tesla Inc. the opportunity to set up fully owned manufacturing operations in China, the world’s biggest market for electric vehicles. Ford Motor Co. is exploring setting up a joint venture to produce electric vehicles in China with Anhui Zotye Automobile Co. while Volkswagen AG has partnered with Anhui Jianghuai Automobile Group Corp. to make electric cars.

Volkswagen welcomes any liberalization of markets, in principle, a company spokesman said by phone. No changes are being made to the automaker’s existing joint ventures or agreements in China. Said Deep, a Ford spokesman, said it was too early to speculate on the potential policy change. Representatives for BMW AG and Daimler AG declined to comment.

China’s Ministry of Commerce,which is responsible for formulating policy governing foreign direct investments, said it will “actively implement the opening up of the new-energy manufacturing sector to foreigners, together with other departments under the direction of the State Council.”

The ministry also referred to a notice issued in August by the State Council, or cabinet, in which it directed government agencies to broaden foreign investor access to areas including new-energy vehicle manufacturing.

Earlier this month, China put the automotive industry on notice by becoming the latest and largest country to seek a phase-out of fossil-fuel powered vehicles, a move sure to accelerate a global shift toward electric car development. The Chinese government is working with regulators on setting a deadline for ending production and sales of internal-combustion vehicles, said Xin Guobin, the vice minister of industry and information technology.

China has been gradually opening up access to foreign auto manufacturers in free-trade zones. Foreign companies were allowed to set up 100 percent-owned motorcycle and battery manufacturing operations in China beginning in July 2016.

The so-called 50-50 rule for Sino-foreign joint ventures was introduced in 1994 to ensure that China’s then-fledgling auto industry could benefit from technology transfer by jointly operating factories with global auto companies such as Volkswagen and General Motors Co.

The policy has been criticized in recent years for shielding state-owned companies from competition and having to build their own brands.

Tesla, led by Chief Executive Officer Elon Musk, said in June that it was working with the Shanghai government to explore local production. Shanghai has one of the 11 free-trade zones in China. The others are in provinces including Fujian, Guangdong and Zhejiang.