China to remove roadblock for foreign car firms, to drop cap on EV ventures

China will scrap a limit on foreign ownership of automotive ventures by 2022 in a major policy shift to open up the world's biggest car market, even as trade tensions simmer between Washington and Beijing.

In a move welcomed by Germany's powerful car industry, China's state planner said on Tuesday it would remove foreign ownership caps for companies making fully electric and plug-in hybrid vehicles in 2018, for makers of commercial vehicles in 2020, and the wider car market by 2022.

China imposed ownership restrictions in 1994, limiting foreign carmakers to owning no more than a 50 percent share of any local venture. Forcing foreign carmakers to work with Chinese firms was designed to help domestic carmakers compete.

The latest policy move marks a new twist in a see-saw week for Chinese trade. The country slapped a temporary fee on U.S. sorghum on Tuesday after the United States banned American companies from selling parts to Chinese phone maker ZTE Corp on Monday.

Germany's BMW, which has a big stake in trade relations between Beijing and Washington as the biggest exporter of vehicles from the United States to China, welcomed the decision.

"We believe a more free and flexible business environment will benefit both Chinese and foreign companies in China and the Chinese economy. BMW will continue pursuing mutual benefit and win-win solutions with the local partners," the carmaker said.

BMW added it remained committed to expanding a joint venture with China's BBA and was still discussing how to structure a new partnership for its Mini brand with China's Great Wall Motors.

Analysts said the main beneficiaries, at least in the short term, would be manufacturers focused on new-energy vehicles, including U.S. electric carmaker Tesla, which has been seeking to set up its own plant in Shanghai.

Tesla chief Elon Musk said last month that China's tough auto rules for foreign businesses created an uneven playing field as scores of local and international companies compete for a slice of China's fast-growing market for "green" cars.

Tesla was not immediately available to comment on Tuesday.

The looser rules are likely to raise pressure on domestic carmakers, potentially hitting the likes of Warren Buffett-backed BYD Co.

Traditional automakers will need to wait longer for any direct impact and could face more risks than opportunities in ditching their joint venture structures, said James Chao, Asia-Pacific chief at consultancy IHS Markit.

"Foreign companies may already be in a box (in China)," said Chao, adding the joint venture structure was now so ingrained that many might not want to change it.

"While getting a bigger share could be advantageous in terms of boosting profits, they may actually be already too dependent on their Chinese partners to sever those ties."

A spokesman for Germany's Volkswagen said: "We will carefully analyse whether this opens up new opportunities for Volkswagen and its brands."

Daimler, parent company of Mercedes-Benz, said it was happy with its current business set-up in China, adding it was watching regulatory developments with interest.

Joint ventures

A senior General Motors (GM) executive said last week the US carmaker, even without ownership caps, would not cut ties with local partner SAIC Motor Corp. The source, who asked to remain anonymous because of the sensitivity of the matter, added GM would not be as successful in China on its own.

GM also said last week its growth in China was "a result of working with our trusted joint venture partners".

Japan's Nissan Motor Co said in a statement it would "monitor how any specific policies develop and will plan accordingly".

Honda Motor Co said its China business had grown on the back of strong local tie-ups. "At the moment we have no plans to change our capital relationship," a spokesman said.

China will also scrap limits on foreign ownership in the shipbuilding and aircraft industries in 2018, the National Development and Reform Commission (NDRC) said.

Airbus and Boeing did not immediately respond to Reuters' requests for comment.

The highly symbolic moves in autos come after President Xi Jinping said last week China would scrap ownership limits "as soon as possible", exciting global auto brands even as Beijing and Washington spar over trade tariffs.

China, which said the easing of autos rules was unrelated to that dispute, is keen to portray itself as open for business. Its ties with the world's largest economy, though, are becoming increasingly fraught.

The United States has banned American companies from selling parts to telecoms equipment maker ZTE Corp for seven years, creating a new fissure in Sino-US ties.