Howes: Advantage China in global auto investment game
The Chinese auto industry’s bid for global legitimacy depends on access to the good ol’ U.S. of A.
But as President Trump likely will be reminded in a series of meetings in Beijing — including with President Xi Jinping — the rules controlling foreign auto investment in China are far tougher than they are in the United States. That’s because they favor the Chinese.
Just ask Detroit’s automakers. Even as the president arrived Wednesday in China on the latest leg of his Asian tour, Ford Motor Co. confirmed it will invest roughly $756 million to create a new joint venture with Zotye Auto to produce and sell all-electric vehicles in China.
With the possible exception of so-called free-trade zones, Chinese law requires 50-50 partnerships of would-be foreign automotive investors in China. The United States? Not at all. Foreign automakers like Toyota Motor Corp. and BMW AG can build plants and technical centers in the States, can own those operations outright and can repatriate profits.
Not in China. And that tension is likely to worsen as China cements its position as the world’s No. 1 market and uses that dominance to bend the industry to its policy preferences. It’s already happening — witness the billions of dollars global automakers are pouring into electrifying their fleets because Chinese regulators essentially demand it, even if consumers mostly don’t.
General Motors Co. joint ventures in China operate nearly 20 plants, an automotive technical center and an auto finance company. Last year GM and its JV partners delivered 3.8 million vehicles, making China the Detroit automaker’s No. 1 retail market in the world for the fifth consecutive year.
Simply put: China’s vast market is good for American automakers — and Chinese policy-makers, up to and including President Xi, know it. Aside from the United States, China ranks among the most profitable markets for global players. Its sheer size and growing middle class of brand-conscious consumers are likely to keep it that way.
That reality can’t help but reshape the industry’s investment priorities. China’s centrally dictated electrification policies, melded with self-driving technological innovation coming from Detroit, Silicon Valley and other tech hotbeds, are creating a new level of competition in the global auto industry that Chinese players fully expect to join.
In the era of Trump and economic nationalism rooted in the industrial Midwest, Chinese ascendancy in the auto space should create a fundamental trade off, says Michael Dunne, founder of Hong Kong-based Dunne Automotive Ltd. and a former president of GM Indonesia.
“If the Chinese want to sell their cars to Americans, they must invest in plants in America,” he wrote in a note this week, reprising an argument in his 2011 book “American Wheels, Chinese Roads.” “Chinese companies will be free to own 100 percent of their operations in America — provided that American car companies get the same rights in China. If the Chinese refuse, then America will reciprocate.”
This sounds like a vintage Trump negotiating position — in the president’s telling anyway: demand full reciprocity, and if you don’t get it, retaliate in kind. Whether that would be effective is another story entirely, given the inescapable fact that Trump’s tour of major Asian capitals is intended to solidify regional opposition to the North Korean nuclear threat.
He needs China more, and more immediately, than he does less restrictive access to China’s auto market for American automakers like GM, Ford and even Tesla Inc. The electric-only carmaker is reportedly close to icing a deal to allow it to build a wholly owned assembly plant — not a JV operation — in one of China’s free-trade zones.
And Chinese investors? They’re on the muscle. Chinese companies last year invested a record $140 billion on mergers and acquisitions outside the country, according White & Case, a global law firm. That amount is expected to double by 2025, signaling a Chinese urgency to buy market access and credibility instead of develop it over decades.
Prominent auto industry assets are not immune. China’s Zhejiang Geely Holdings’s ownership has revived the fortunes of Sweden’s Volvo Cars Ltd., a former ward of Ford. Midea Group acquired Germany’s Kuka AG, a leading supplier of automotive production robotics, for $5 billion.
That’s evidence of a Chinese auto industry on the move, and it’s headed for the world’s richest market: Detroit’s backyard.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.