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Timetable Required for Lifting the Control on the JV Equity Ratio

Date:07-15 18:22 Source:China Auto 30-person Think Tan Authour:An Qingheng

During the development of the auto industry in China, there have always been different views on how the industry should proceed. While the country, society and the people enjoy the benefits brought by the development, criticism never stops. This is normal but not completely right. We need to give it serious consideration and full discussion so as to impartially decide various new policies to facilitate future development of the auto industry.

Currently, all sectors of society are very concerned about major policies that may affect future development, such as lifting the control on the JV equity ratio. I have also given it some thought and below are my opinions.

We need to impartially decide various new policies to facilitate future development of the auto industry.

Timetable Required for Lifting the Control on the JV Equity Ratio

Status and development goals of China’s auto industry

Since First Automobile Works officially broke ground on July 15th, 1953, the auto industry in new China has witnessed more than 60 years of ups and downs.

Through generations of hard work, our auto industry dragged itself out of a state of blank vacuum, and is now growing stronger. Through more than 60 years of development, and especially over 30 years of rapid development following reform and opening-up, the auto industry has beyond doubt become one of the important mainstay industries in China’s economy. Statistics show that the added value of our auto industry already accounts for more than 2% of GDP. If we also take into account its impact on fueling the growth of upstream and downstream industries, this industry contributes over 10% in driving the national economy.

Despite the fact that development in the Chinese auto industry began to slow down in 2014, there were still over 24.5 million automobiles produced and sold around the country in 2015. China has remained world No.1 in terms of automobile production and sales for the last seven years.

In March this year, the China Association of Automobile Manufacturers issued the Opinions on the “13th Five-Year Plan” for Auto Industry Development, which set the“13th Five-Year Plan” development goals for the Chinese auto industry, including the forecast that the production and sales of automobiles in China will maintain steady growth and that production and sales will have reached 28~30 million vehicles by 2020.

The Chinese auto industry occupies an important position in the national economy. It contributes to growth, optimizes industrial structure, and drives the development of associated industries. New growth points like new energy automobiles and intelligent connected vehicles that have recently emerged are also developing rapidly. Therefore, the Chinese auto industry plays dual roles as a spine and a support in the immediate and long-term development of the economy. All this serves to indicate that the auto industry is not a general manufacturing industry at all.

Powerful countries are all strong in the auto industry. Currently, China’s economy is in transition, and automobiles are at the top end of the whole industry chain. Given that the prospects for the Chinese machinery industry are not so bright, the auto industry will play a critical leading role in achieving the goals set in “Made in China 2025”. China’s auto industry will be both large in scale and powerful. This is a firm industry goal. We need to clearly define the strategic direction to reaching world class and set the strategic goal of “becoming a country with a powerful auto industry within 10~15 years”.

In order to achieve this goal, first of all, local auto makers must become strong. As “big” as it may look, the Chinese auto industry is currently dominated by multinational corporations and cannot be called “strong”. If we are to discuss whether we should lift the control over JV equity ratio and how to lift it, it is certainly necessary for us to consider how to support and help local enterprises and Chinese brands. Only if we can make these local auto makers strong, will we be able to maintain the status of the auto industry as a mainstay industry and truly achieve our development goals.

A fair appraisal to previous policies on JV partnership

Under the leadership of the CPC Central Committee and the State Council, through years of hard work, the Chinese auto industry has achieved rapid development, especially since the reform and opening-up. As a result, China has been the world's largest automaker and automobile market since 2009. All those striving for the development of the auto industry should be proud of and delighted with this achievement.

During the development of the auto industry, major automakers have focused on the critical importance of independent development.

Meanwhile, opening up and joint-venture partnerships have also played an important role. Through JV partnerships, we have introduced advanced overseas technologies, accelerated the development of the auto industry, established advanced automobile manufacturing systems and capabilities, cultivated and trained a great body of highly-competent talent, all of which has not only played an important part in the joint ventures, but also made a contribution to the development of some local-brand auto makers.

I believe joint ventures have played an important role in the growth of the Chinese auto industry. Without them, China would not be No.1 in automobile production and sales right now and local brands would not have developed so rapidly.

In recent years, all major auto makers have worked hard to develop local-brand car products, which is important and also necessary. However, it is undeniable that in most automotive groups, like FAW, SAIC, Dongfeng, BAIC and GAGC, it is the profits of joint ventures that support the growth of these groups and constitute the funding sources for the development of Chinese brands.

Although there is no helpful experience for China to learn from in the development of joint ventures, there are still experiences that we can summarize and build on.

We should give a fair appraisal to previous policies on JV partnership, fully recognize the achievements we have made and make adjustments to such policies to meet the needs of the developing situation rather than see these policies as redundant while still enjoying the benefits they have brought. Now that joint ventures are undergoing major development and giant international automakers are all making China their strategic focus, there is a fierce debate over whether the equity ratio control should be lifted.

We know that western countries are imposing greater pressure on the Chinese government by various means in the hope of getting China to lift the control on the JV equity ratio.

We also know that China needs to be more open to the world, and it is necessary to establish proper policies for the auto industry to further facilitate this. However, from the overall point of view, determining how open we should be is a delicate question for the future development of the Chinese auto industry and the Chinese economy. We make adjustments to achieve better development. Just because we have made them does not mean we should deny the past.

The debate over the JV equity ratio

The debate over the equity ratio exists in joint ventures in every country and every industry. This is a worldwide topic.

Any investor will want to be a majority shareholder or even the controlling shareholder once it is certain about its investment target and as long as it can afford it, because a majority or controlling shareholder is the one who calls the shots. In this way it can take over the market and maximize profits.

In the near future, the Chinese auto market size will probably reach 30 million vehicles per year or even bigger. The debate over the equity ratio restriction is actually a scramble for market share. Every multinational auto maker is eager to gain more market space, so it is natural that these companies hope the equity ratio restriction will be lifted.

In this debate, some of us seem to believe that foreign companies should hold the majority shares of JVs unconditionally and that it was wrong from the beginning to implement the 50:50 ownership policy for JVs. Actually, even some foreign entrepreneurs will clearly see the problem here. As a well-known entrepreneur from Germany put it: “Which country in this world would so easily give up such precious market resources to others?”

The auto industry is a global manufacturing industry. It is unrealistic for any country to expect to develop its auto industry without interfacing with any other country.

It is true that the global industrial chain and international division of labor exist, but it is also beyond doubt that every country and nation will want to gain profits and control through this division of labor. To hold more shares in a joint venture is obviously the easiest way to gain control. However, the percentage of equity that a foreign investor can have in a joint venture in a country will have a significant impact on the development of its auto industry.

In Latin American countries like Brazil, auto production is not low, but why is the auto industry under-developed? The reason is that they do not have strong local auto makers. In most auto enterprises, foreign investors hold 100% of the shares. With the auto industry out of their hands, these countries have developed a very high economic dependence on foreign companies. These are all good lessons for us to learn from.

In contrast to Brazil, after JV cooperation with multinational corporations, South Korea firmly adopted a policy of independent development, and that is why the auto industry in this country developed so fast and is even now in rapid growth. South Korea has become the fifth automobile power in the world. This experience is also worth our learning.

Looking back on the history of Chinese auto industry development, the policies on joint ventures so far have been correct, but what adjustments we need to make in the future is quite another matter.

Timetable Required for Lifting the Control on the JV Equity Ratio

Background story about the 50:50 equity ratio for JVs

As a matter of fact, in the 1980s we wanted to develop the auto industry but were held back by the lack of capital, and that is why we chose to establish joint ventures with foreign investors. However, many people may not know that in the early stage of JV partnership, the equity ratio was decided by the partners themselves through negotiation.

In May 1983, Beijing Automobile Works (BAW), as Party A, signed the master joint venture contract for the first Sino-foreign automobile enterprise in China - Beijing Jeep Corporation with American Motors Corporation (AMC), with a contract term of 20 years. BAW contributed some of the workshops and facilities used to manufacture BJ212 light-duty off-road utility vehicles and a cash equivalent to USD 6.6 million, which amounted to a total contribution of USD 35.03 million and 68.65% of the total capital; AMC contributed its industrial property right and cash amounting to USD 8 million, which accounted for 31.35% of the total capital. In May 1990, with the approval of Chinese government, the registered capital of the joint venture was increased to USD 56.73 million, 38.25% of which was contributed by the US side and 61.75% by the Chinese side.

At that time, the equity ratio between the partners was not 50-50; instead, the Chinese partner held the majority. This was a result of negotiation between the partners rather than a ratio stipulated by the automobile industry policy, as no such policy had yet been issued at the time.

In fact, it was not that the US partner did not want to be the majority shareholder, but everyone knew that this was the first joint venture ever in China, so the risks were quite high. The majority shareholder might gain more profits, but it would also have to bear higher risks, which the foreign partner did not want to take. Besides, a majority shareholder required more capital. At that time, the foreign partner did not have that financial strength. Even with this equity ratio, the joint venture still needed to rent some workshops and facilities from the Chinese partner to start up the operation.

In order to avoid risks, in the early stage of JV partnership, the US side even asked the Chinese side to sell JV products on behalf of Beijing Jeep Corporation. This would look rather strange under the current situation. Why would the foreign side even agree to hand over the right of sales to the Chinese side?!

Years later, the US shareholder was changed to Chrysler. This company had much deeper pockets than AMC and thus was unless pressure to take out the profits it earned from the JV. At that time the Chinese side needed the dividend from the JV to support the development of its own work. Therefore, both sides agreed through negotiation that the foreign side reinvest some of the dividend into the JV, and accordingly the equity ratio of the JV needed to be adjusted. Ultimately the equity ratio of Beijing Jeep Corporation was adjusted to 50:50.

Guangzhou Peugeot Automobile Company, founded in March 1985, also had a majority of its shares held by the Chinese partner. Among those JVs founded in the same period, only Shanghai Volkswagen Automotive Co., Ltd. had an equity ratio of 50:50. Different enterprises operated under different conditions.

Since the 1990s, the Chinese auto industry has ushered in an era of accelerated opening and rapid development. China gradually lifted the admittance restrictions on car production and encouraged and guided foreign investors to participate in the establishment of joint ventures. The government also released a number of preferential policies for cars in terms of investment, planning and technology imports. As a result, the market capacity in the auto industry and the scale of major auto makers rapidly expanded and car joint ventures became a hot trend.

Indeed, as early as in August 1988, the State Council made the strategic decision to set up three big car production bases in First Automobile Works, Second Automobile Works, and Shanghai Automotive Industry Corporation. FAW soon started the preparation for the pilot project and had several rounds of negotiations with Volkswagen.

At that time, the German company was not too optimistic about the Chinese auto market, neither did it believe the market would develop fast. Being afraid to take too much risk, Volkswagen totally agreed with the equity ratio of 40:60 with the Chinese partner in the joint venture.

In February 1991, FAW-Volkswagen Automobile Co., Ltd. (FAW-VW) was officially founded, with FAW holding 60% of the shares and VW 40% (in 1996, after negotiation, it was decided that Audi take 10% out of the 40% of FAW-VW shares owned by Volkswagen). In this case, it was still the Chinese side that held the majority shares.

In 1992, Dongfeng Peugeot Citroen Automobile Company Ltd. was founded, with the Chinese and French partners each holding 50% of the shares. Thereafter, a succession of automobile joint ventures were founded. The equity ratios of these JVs were quite different, but all of them were results of negotiation between the partners.

Looking back at this history, we can see that it is with the growth of the Chinese auto market, the success of joint ventures as well as the high returns from and lower risks in the investment in China that foreign investors started to demand a 50-50 equity ratio in joint ventures and later even expressed the wish to become a majority equity holder.

In July 1994, the State Council officially promulgated the first Automobile Industry Policy in China, which specifically provided that in any Sino-foreign joint venture, the Chinese partner must hold at least 50% of the shares.

After the industry policy was promulgated, some foreign invested enterprises indicated that they still wanted to be the majority equity holders of JVs if the policy would allow.

More than 20 years have passed, and now when we look at this policy we see no negative impact on the development of the auto industry; on the contrary, it has developed quite rapidly, which indicates our policy is right.

Back when joint ventures were in an uncertain, or rather high-risk development environment, we agreed to allow the foreign partners to participate in joint ventures as minority shareholders and let the Chinese partners take most of the risks; now when these joint ventures are making huge profits, it is completely right for the Chinese partners to stick to the high equity ratios agreed upon in the contracts through negotiation or adopt the bottom-line ratio of 50-50 within a certain period in order to protect their own interests. At present, some Chinese partners are still holding the majority equity in joint ventures and some use the prescribed 50-50 ratio. These are the results when the Chinese and foreign partners continue to execute their contracts or determine the final equity ratio according to the government policy.

On January 26th, 2015, Dongfeng Commercial Vehicle Co., Ltd. was officially established and began operations. This joint venture was co-founded by Dongfeng Trucks and Volvo at an equity ratio of 55:45, which is a good case worth our studying.

The restriction policy on equity ratio and “two joint ventures” (referring to Article 29 of Automobile Industry Policy issued in 1994 – no foreign (or regional) enterprise may establish two or more joint ventures or cooperative enterprises in China for the same kind of automobile products) did provide opportunities for the development of local brands.

Opinions vary on the lifting of the control over JV equity ratio. Indeed no one can accurately forecast what the auto industry will be like after this restriction is lifted. However, we can still have a look at the areas of the auto industry where restrictions have been lifted.

Take automotive electronics for example: strength in automotive electronics represents the core competitiveness of automobiles, but as there is no restriction on the equity ratio, domestic automotive electronics enterprises have all been sidelined. Due to the absence of ratio limit, the manufacturers of other key automotive parts have also been subject to the dominance of large foreign companies. These key auto parts actually extend a form of control over our automobile development.

Auto parts are only a portion of the auto industry, but judging from what they have experienced, it might seem that if not for the equity ratio restriction, the whole auto industry would have been annihilated.

While the Chinese auto industry is developing rapidly, great changes are also taking place. It is no longer “disorganized, chaotic and weak”.

Under the guidance of national policies and as a result of the efforts made by the whole industry, the Top 10 auto makers account for over 90% of the industry.

As hard as development may be, in recent years our local brands have already achieved growth beyond the intended target. By the end of April this year, our domestic brands had a market share of 19.6%, domestic passenger vehicle brands taking 44.3% and domestic automobile brands up to over 50%. Major enterprises like Chang’an Auto, GAGC, SAIC, Dongfeng Automobile and BAW as well as private enterprises like Great Wall Motor, Geely Automobile and BYD Auto have all rapidly improved their independent development abilities.

Objectively speaking, it is because we have restricted the equity ratio of auto joint ventures and implemented the “two JVs” policy and given great encouragement to the development of the auto industry during these years that domestic brands have been given the chance to develop.

By utilizing development opportunities during these years, domestic auto makers like Chery, Great Wall and Geely have all concentrated on developing mid-end, low-end and SUV products, built and enhanced their strengths, captured market share, and trained their teams at the initial development stage. After gaining a firm foothold in the market, they kept improving and started to develop mid- and high-end products to compete directly with joint ventures. This made complete sense – how could local enterprises outrun foreign auto makers in such a short time?!

If not for the policy restriction on the establishment of automobile joint ventures and the equity ratio during these years, there might not necessarily be so many foreign invested enterprises and so much foreign investment in China, our local enterprises would have to fight for market share with foreign automakers rather than joint ventures, our local products would be forced to compete with those manufactured by foreign auto makers operating in China rather than imported vehicles and the ones manufactured by joint ventures, and China’s auto industry would not be as it is today.

The reason we believe that the equity ratio restriction and the “two JVs” policy should not be lifted in haste is that we need to give domestic brands more time and opportunities to build and develop their skills. Our Chinese brands have not let us down. They have developed and improved by taking advantage of the opportunities afforded to them.

It is worth noting that WTO rules do not require us to lift the control over equity ratio.

What is more, in theory things progressed well in China’s auto industry in these years; in other words, the allocation of auto market resources has not required changes in the current policy and the immediate lifting of control over the equity ratio. Therefore, it is not wrong to maintain the restriction for a certain time.

As everyone knows, the demand for easing the control over JV equity ratio is coming from the foreign partners. Of course, in order for our companies to go global, we need to give full consideration to foreign investors’ expectations and make some adjustments to the policy. It is also true that we should not protect domestic brands in a passive manner. We can offer them only a limited time so as to force them to compete. Only the strongest survive.

Forecast of foreign companies’ reactions

I would like to attempt a subjective analysis according to the current situation of Sino-foreign automobile joint ventures on how foreign investors will react if the control over equity ratio is lifted:

Since the emission scandal became public, Volkswagen have been quite financially strained, and some uncertainties have also appeared in the Chinese auto market. As a result, the German company would no longer be so eager to ask for share increase as last year. Therefore, it is not clear how the equity ratio of FAW-VW will be adjusted after the control over JV equity ratio is lifted, but it is very likely that Volkswagen will insist on adopting the 49% as previously agreed upon in the negotiation. After things improve, it might then demand an increase in the equity ratio at any time.

In Sino-Japanese joint ventures, Japanese partners will not necessarily ask for a ratio increase immediately.

Take Dongfeng Nissan for example. The Japanese partner will think the two sides have been working with each other quite well and that the Chinese side has great strengths in labor management, so there is no need to change the equity ratio. It is said that there is an auto part manufacturer whose shares are 100% owned by the Japanese side, but this Japanese partner has even proposed transferring 30% of the shares to the Chinese partner.

In the aggressive manner of the US government, the US partners in Sino-US automobile joint ventures might immediately ask for an increase in their equity ratios.

Though Chinese and German enterprises have cooperated with each other quite well, German partners might reassert their right to increase the equity ratio, especially Mercedes-Benz, who may well demand a change in the ratio at an appropriate time. However, it is hard to predict exactly when this might happen and what the overall plan will be like.

It remains to be seen how South Korean companies will react. As the Chinese and the South Korean partners currently work with each other fairly well, the South Korean side may not immediately ask for ratio increase. However, considering their operating philosophies, it is still possible that they will make this demand.

As for the “two joint ventures” policy, how foreign investors will react after it is lifted could depend on the negotiations held between partners on the equity ratio and the operation of joint ventures. I think it likely most foreign companies will not neglect their relations with the Chinese government and their partners; they are unlikely to move quickly on founding further joint ventures. Of course, if the policy is lifted, we do not exclude the possibility that a few strong companies who did not hold many shares in the original joint ventures will consider establishing a new joint venture or wholly-owned corporation.

These are all my subjective predictions. I have a strong belief that large foreign companies will handle these issues in a restrained manner if they care about their development in China and want to keep it smooth. Even if they want to change the equity ratio, they will have to undertake prolonged negotiations with their Chinese partners before reaching any agreement. Of course, after the policy adjustments, the situation may change dramatically within one or two years. The above predictions are merely my best guesses.

Possible situations after the equity ratio restriction is lifted

1. Rankings of Chinese automobile enterprises among Fortune Global 500 could change. If the Chinese side no longer holds the majority shares of a joint venture, the revenues of will not be included in the revenue of the group company on the Chinese side. This may alter the rankings of SAIC and BAIC on the Fortune Global 500 list and the structures of listed companies. If the number and rankings of Chinese companies among Fortune Global 500 are reduced, it will take even longer for China’s auto industry to get stronger.

2. Under the current situation where the equity ratio is 50:50, foreign partners already take out half of the profits from Sino-foreign joint ventures in China, not to mention that they also can gain other benefits from these joint ventures in other ways. Once the equity ratio is unlimited, it is not clear how Chinese partners will protect their own future interests. It is very likely that some Chinese enterprises will become agents for foreign auto makers, just as is happening in Brazil. In that case, we could only remedy the problem by making our local enterprises stronger.

3. Foreign brands are very competitive in the Chinese auto market. Due to years of development, foreign brands still have plenty room for price cuts. Once the restriction on JV equity ratio is lifted, Chinese partners will no longer have much say and government guidance will also become very difficult. It will be much easier for foreign companies to take out domestic-brand vehicles by importing some auto parts and lowering the prices of JV products. At the same time, foreign companies will also gain more control over the joint ventures, with unforeseeable consequences. What is more, with the foreign side taking full control of the automobile manufacturers, it will be even harder for Chinese auto part makers to go into business with them.

4. As some foreign companies will set up wholly-owned corporations in China, they will poach some talent from their Chinese partners, which could result in partial reshuffles in the auto industry.

5. Some large companies could get stronger in China, and competition between foreign companies will intensify. Consequently, some of them will probably drop out of the game.

It is necessary to prepare in advance for the lifting of the control over equity ratio

1. We need clear national strategies for the auto industry.

The biggest lesson we can learn from the auto industry is that there is no national strategy implemented here. Without clear national strategies and measures in place, some major industrial decisions are likely to be one-sided because they are made by only a few people who take charge of the vehicle management department. The reason that South Korean companies could shift to independent development after short-term joint venture partnership is that they established the JV policy with a very clear purpose, which was to support subsequent independent development. However, when we resorted to joint venture partnership, we did not figure out that the ultimate goal was to strengthen ourselves, and that is why joint ventures are a success, and yet we are talking about lifting the control over equity ratio. Due to the lack of a clear national strategy, when a JV contract expires, it is not surprising that it can be extended for another 20 or 25 years without any certain criteria being used as the basis. It seems to some people that the more relaxed the policy is, the better the situation will be and that the greater freedom the companies are given, the more revolutionary industrial development will be. This theory is perhaps a bit too simplistic, and makes little sense.

We suggest the Chinese government set up a core department to consider, from the perspective of national interests, the strategic position, current situation, development goals and actual difficulties of Chinese auto industry, to further develop a clear national strategy and implementation measures for the auto industry, and to organize the implementation phase by phase.

2. State-owned auto enterprises need further reform and domestic restrictions should be lifted first.

At present, the auto industry is a competitive sector retaining the most state-owned capital. Having exposed their weaknesses in competing for talent and decision making efficiency, large state-owned enterprises are in urgent need of further reform. When we talk about lifting the control over JV equity ratio, let us not forget to first accelerate and reinforce the reform of state-owned enterprises, especially the larger ones, in the auto industry. We should lift the restrictions on domestic companies first by allowing different kinds of capital to enter the auto industry. It is necessary, fair and also reasonable to lift these restrictions first domestically and then externally.

3. We need to strengthen guidance in equity ratio negotiations, focus on the pace of adjustment, formulate detailed rules, and strictly control and guide the establishment and extension of joint ventures rather than lifting the control indiscriminately.

Our governmental officials and corporate leaders at various levels should also think about how to properly guide the establishment of new automobile enterprises, including commercial vehicle manufacturers, and the determination of the equity ratio; how to control and guide the adjustment of the equity ratios of existing joint ventures and the extensions of their operation terms; how to strictly review the land provided for joint ventures; and what new requirements should be raised for the improvement of technologies imported from overseas and the support of independent development once a JV partnership term is extended.

Through analysis, we believe that the control over the JV equity ratio should not be lifted indiscriminately and there is no need for us to ask for this. At the enterprise level, as long as the bottom line of 50:50 is not violated, we should allow enterprises to make the final decision on the equity ratio of a joint venture.

4. We should make plans for the future when the restriction on JV equity ratio is lifted.

We suggest setting a timetable for lifting the control over JV equity ratio. This current restriction policy should be maintained for at least another five years or even ten years, which is equivalent to one or two product replacement cycles. By that point, the policy can be loosened gradually based on the prevailing conditions. Of course, the final policies will be decided by the government.

Meanwhile, we should develop plans to cope with the situation after the control over JV equity ratio is lifted and make proposals on the conditions for, and the management of, newly established auto enterprises. We should also develop different policies for different joint ventures with unexpired, expired, or extended contracts through careful analysis, on a case-by-case basis. Considering the excess capacity in Chinese auto industry, we should strictly control the establishment of new enterprises by foreign companies in order to avoid waste of resources.

During the negotiations on equity ratio adjustment, we should calculate the actual value per share using internationally accepted financial accounting methods and ask the partner who is seeking an increase in their shareholding to pay sufficient cash. There should also be policies to guide how to make staffing plans for joint ventures whose equity ratios are changed. After the policy adjustments, all enterprises should also think about how to maintain technology sharing, brand sharing, and market sharing in the communication with their JV partners, and in the future achieve joint development.

5. Local enterprises should utilize this policy transition period to explore new opportunities for innovation.

We believe our Chinese people working in the auto field will utilize this period to raise Chinese auto industry to a new level, so that China will be one step closer to being an automobile power. When the policy transition period is over, it will be much easier to talk about lifting the control over equity ratio than it is today.

Currently, some of our local enterprises are developing very well. Take Great Wall Motor for example. It is a fast-growing enterprise. Although it has no foreign investment, it still runs fairly well. In fact, behind the success of Great Wall, there also has been very deep and extensive international cooperation. The innovation experience of Great Wall Motor is worthy of study.

Chang’an Automobile is another local enterprise that has been developing quite well in recent years. It has set up development centers all over the world and imported advanced overseas technologies at the right time. Geely Automobile, after acquiring Volvo, handled the relevant business relations properly, gained Volvo’s support, and gained a lot of good experience, and as a result Geely’s product development has maintained a very good momentum.

We think that, on the one hand, the Chinese government needs to make more effort to support auto makers in exploring new paths of innovation; on the other hand, there should be more enterprises in the auto industry ready to seize every opportunity to break through barriers and rapidly grow through independent innovation before the JV equity ratio control is lifted.

We also think that besides having high expectations for Chinese auto brands and pointing out their shortcomings, we should offer them more support and help. After all, Chinese brands belong to China!

Introduction to the author:

An Qingheng: former Board Chairman of Beijing Automotive Industry Corp/ Director of Advisory Committee of China Automotive Industry/Member of the China Auto 30-person Think Tank

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