Economy

China to scrap ownership limits on foreign car makers

China to scrap ownership limits on foreign car makers

Meanwhile, the rule that foreign auto makers shall have at most two joint venture partners when they enter the Chinese market, is also expected to be removed by 2022. China has required foreign auto makers to enter into ventures with domestic partners to operate in the country since 1994, with the overseas company holding no more than 50%.

China announced plans Tuesday to allow full foreign ownership of automakers in five years, scrapping rules that require global automakers to work through state-owned partners.

China on Tuesday said it will slap a temporary fee on US sorghum, used as feed meal in China, in a preliminary anti-dumping ruling after a Chinese probe launched more than two months ago.

"This is a signal in the right direction".

The Chinese announcement comes as tension deepen between the USA and China over heightening trade tariffs.

The move marks the latest twist in a see-saw week for Chinese trade. While the restriction for commercial vehicles and passenger cars will be removed in 2020 and 2022, respectively.

German and USA carmakers were quick to welcome the news, while reassuring that they won't abandon local partners.

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Analysts said the main beneficiaries, at least in the short term, would be manufacturers focused on new-energy vehicles, including USA electric carmaker Tesla, which has been seeking to set up its own plant in Shanghai. By forcing foreign interests to partner up with domestic auto companies, China's OEMs could get more experience in the craft while the foreign automakers reaped the benefits of expanding into a new market.

Tesla was not immediately available to comment on Tuesday.

The looser rules would likely raise pressure on domestic carmakers, potentially hitting local names such as Warren Buffett-backed BYD Co.

"In a decade, foreign carmakers will gradually become all independent and Chinese companies will lose the cash flows from the joint ventures", stated Yale Zhang, an analyst for Automotive Foresight Co. Companies from Daimler AG and BMW AG to General Motors Co. and Toyota Motor Corp. are set to find it easier to manufacture and do business in China, while local makers will be under increased pressure to speed up the building of their own brands. "Foreign carmakers will be happy as they won't have to share 50% of the profits with their Chinese partners". GM, which is one of the biggest players in China with a 14% market share, also said the company's "growth in China is a result of working with our trusted joint venture partners".

"We have no plans to change our investment ratio", said Keitaro Nakamura, a China-based spokesman for Honda Japan, which operates joint ventures with local state-run automakers Guangzhou Automobile Group and Dongfeng Motor.

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-U.S. ties.