Experts warn about lifting auto JV limit

Experts said on Wednesday that currently domestic carmakers are not mature enough to face a completely open market, after the Ministry of Commerce said last month China will relax foreign investment restrictions in manufacturing industries.

According to the current Chinese regulation on foreign investment in automobile industry, foreign companies cannot have a stake exceeding 50 percent in joint ventures.

However, there have been discussions for several years urging that this "red line" of 50 percent should be removed.

Shen Danyang, spokesman of the Ministry of Commerce, said on November 19 that China will further open up the manufacturing industry to foreign investment, including lifting limits on how much of the joint ventures that foreign investors can own.

The large Chinese automobile manufacturers rely heavily on the profits gained from joint ventures, but compared with their foreign partners, they do not have sufficient advantages in technology and management experience, said Li Weili, a deputy division chief of Business Consulting Center under the State Information Center.

The 50 percent shareholding limit was set by the government to protect domestic automobile enterprises by ensuring that they can enjoy at least 50 percent of profits gained by joint ventures, Li told the Global Times Wednesday, noting domestic carmakers will suffer serious losses if they lose this protection.

Dong Yang, secretary-general of the China Association of Automobile Manufacturers (CAAM). opposed giving foreign investors more shares in joint ventures and said Chinese automobile companies will lose control of joint ventures without the protection of the share limit.

Alan Mulally, CEO of Ford Motor Co, said that lifting limits on shareholding percentage of joint ventures is a natural trend and Ford expects to see the opening-up on investment in the future, Guangzhou-based Nanfang Daily reported on November 25.

Dong said on the website of CAAM Monday that although China has developed a modern automobile industry, China still has to import core components and materials.

If foreign automakers can take absolute control of joint ventures, they can directly import cars under their own brands and shut down production of cars with local brands, Dong warned. In this situation, Chinese automakers cannot fight back when they lose control of the joint ventures, noted Dong.

On the other hand, "the current limit has not damaged the enthusiasm of foreign carmakers in investing in China, so why should China be more open?" Dong said.

Moreover, if Chinese companies lose control of the joint ventures, they can hardly utilize joint ventures' technologies and talents to support their own development.

The aim of setting up joint ventures with foreign automakers was to learn their advanced technologies and management skills, but the strategy has not shown positive results as expected even after almost 30 years, Wu Shuocheng, editor-in-chief of auto website auto.gasgoo.com, told the Global Times Wednesday.

State-owed automobile companies rather than private automakers benefit from the share limit, Wu said, noting consequently these large State-owned automobile manufacturers will be under pressure if the limit is lifted.

In order to protect their own interests, State-owned automobile manufacturers will likely oppose the lifting and the market will not see the removal of the share limit anytime soon, Wu said.

But a fully open market will be an unavoidable development, both Li and Wu agreed, noting it is just a matter of time before the government lifts the joint venture share limit.