China lifts foreign ownership restrictions for car manufacturers

China has announced it will lift restrictions on foreign ownership of its automotive conglomerates from 1 January 2022.

The announcement came just after Christmas, and means foreign manufacturers can have full ownership of vehicle brands in China, instead of the existing agreement that saw foreign investors (such as Volkswagen, Honda, Ford and many more) form joint ventures with Chinese companies in order to enter the Chinese new car market.

Reported by Forbes, the change was discovered in a document issued on 27 December 2021 by the Chinese Ministry of Commerce and the National Development and Reform Commission.

It overrides the requirement, since 1994, whereby China required foreign auto makers to form a 50:50 joint venture with one of its local car makers in order to enter the Chinese new car market. Until now, that requirement meant outside car makers were required to tie-up investment in China, while also sharing profits and technology within the People’s Republic.

This allowed China’s own brands such as Dongfeng, Changan, SAIC, and FAW to become the biggest car makers in the country, as part of partnerships with brands such as Kia, Mazda, General Motors and Volkswagen.

In 2018, the rules changed to allow foreign investors a maximum of 70 per cent ownership of Chinese auto companies, which resulted in BMW’s joint venture with Chinese firm Brilliance Auto Group. But the repeal of the restriction altogether is thought to be a move designed to tempt start-ups such as Lucid and Rivian into entering the world’s largest passenger car market, without having to form a joint venture.

In essence, it allows foreign brands a more profitable (and easier) deal when building/selling vehicles in China. The lift in restrictions will also allow foreign investors to form more than two joint ventures with Chinese firms, where previously two was the maximum.

As an example of the status quo, Chinese-owned brand SAIC builds and markets its own brands such as Maxus, Roewe, Yuejin, and MG (the latter of which is exported to Australia). But it also builds and sells Volkswagens, Ivecos, Skodas, Chevrolets, and Buicks in its home market thanks to existing joint ventures.

Other Chinese manufacturers such as Geely are independently-owned and are unlikely to form any relationships with international auto makers. It already owns majority stakes in the UK's Lotus, Sweden's Volvo and Polestar, and Malaysia's Proton.