For the longest period China has been a closed economy but that is now destined to change, at least for foreign auto companies from January 1, 2022. China will be lifting its foreign-ownership limits on automotive companies allowing for full foreign ownership of passenger and commercial automakers in the country. It will do away with the existing system that has limited foreign ownership to only joint ventures, in a bid to promote investment for some of the biggest and most prominent automakers in the world.
The country will also lift the restriction limiting foreign investors to only establish a maximum of two joint ventures in China. The Chinese Ministry of Commerce and the country’s National Development and Reform Commission made the inclusion in a document released earlier this week. The proposal was under review since a year and finally the announcement has been made.
For a better perspective, this is very similar to the economic reforms of 1991 in India when the nation adopted privatisation, liberalisation and globalisation that opened up doors for foreign manufacturers to establish base in our market. India saw an advent of various brands like Hyundai, Honda, Ford and General Motors among others while players like Suzuki and Honda two-wheelers had been operating with local manufacturers like Maruti Udyog Ltd. and Hero. That said, India had opened its economy for every sector.
The Chinese government maintains a list of industries in which foreigners must invest at a maximum rate of 50:50 joint-venture partners, rather than full owners, and the car industry has had a place on the list since 1994. The announcement opens the market for newer brands like Rivian and Lucid to access the world’s biggest passenger car market without collaborating with any local player. In turn, the amendment also allows foreign brands like Volkswagen, Ford, GM, JLR and Mercedes-Benz among others to take over their respective joint ventures.