With trade tensions on the rise, China announced Tuesday that it is opening up its auto industry to foreign automakers.
China will remove limitations restricting foreign ownership of any local venture to no more than 50 percent for foreign automakers eager to produce cars locally and skirt China’s high import tariffs, the National Reform and Development Commission revealed Tuesday, according to multiple reports. In the past, foreign carmakers were forced to partner and share profits with state-run Chinese companies to operate in country.
China’s offer comes amid tit-for-tat exchanges in a trade dispute between Washington and Beijing that many fear could escalate into a full-scale trade war.
The limitations, first imposed in 1994, were designed to give Chinese automakers a leg up in a competitive industry. Beijing has long been accused of erecting unfair trade barriers in the auto industry and other key business sectors. In fact, U.S. Trade Representative Robert Lighthizer has criticized China’s demands that General Motors Co. and Ford Motor Co. establish joint ventures to do business in China.
Reforms have been tossed around for years, yet Chinese state-run automakers have pushed back on proposed changes. Perhaps the threat of a major trade war has led Chinese leadership to take action. There is also the real possibility that Chinese automakers have less to fear now that they are better able to compete against foreign carmakers.
The limits for hybrid vehicles will be removed this year, restrictions for commercial vehicles will disappear in 2020, and the broader auto industry will be open by 2022. China also plans to remove limitations for the aviation and shipbuilding industry.
The move was welcomed by leading German automakers, such as BMW, as well as American companies like Ford and General Motors.
News of a more open auto industry comes just one week after Chinese President Xi Jinping announced at the Boao Forum that China ultimately plans to eliminate the high 25 percent tariffs on imported vehicles. It should be noted, though, that China has made these promises before.
These apparent concessions may benefit some American automakers. However, China’s changing policies may actually provide greater benefits for European automakers. As is, most of China’s annual auto imports are German-branded luxury vehicles. Furthermore, many companies may continue to pursue opportunities with their Chinese partners, as these partnerships make it easier to do business in China.
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