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NDRC: Chinese Government Considers Lifting the Foreign Equity Cap

Date:07-02 13:08 Source:Beijing Business Today Authour:未知

New energy is one of the rapidly developing fields in China, but there is still a gap compared with foreign countries. It takes at least RMB 3 billion Yuan to develop a battery and generally 5-10 years to commercialize it. Chinese partners to joint ventures tend to eschew investing in such slow-return fields.

NDRC: Chinese Government Considers Lifting the Foreign Equity Cap

With the development of the auto industry, there is a growing call to lift that cap; even the government seems to be relaxing its control.

Xu Shaoshi, Director of the National Development and Reform Commission (NDRC), said on June 27th that the government was considering lifting the 50% foreign equity cap for the auto industry. After two years, the debate over the foreign equity cap for the auto industry has been reignited.

The question whether the restriction on shareholding ratio should be loosened for the auto industry came up again at the Summer Davos Forum in 2016. On June 27th, Xu Shaoshi, Director of NDRC, indicated that the government was considering lifting the 50% foreign equity cap. After two years, the debate over the cap has been reignited. The cap was initially imposed to protect the fledgling Chinese auto industry, but insiders think that with local auto makers getting stronger, it is only a matter of time before the cap is broken. Therefore, rather than be “protected” by the government, local auto makers should strengthen their own comprehensive capabilities and gear up for action.

“The greatest pressure is actually coming from foreign governments,” said Jia Xinguang, an auto expert, in an interview with reporters. Miao Wei, Minister of Industry and Information Technology, also said recently that under severe pressure from foreign countries, the Chinese government would definitely make adjustments to the policy in a few years.

In 1994, China began to allow foreign and domestic auto makers to run joint ventures together in China. At that time, in order to protect the national auto industry, a 50% foreign equity cap was imposed. Policy on Development of Automotive Industry issued in 2004 and 2009 made adjustments to this policy, but without changing the provision that the Chinese side must hold at least 50% of the shares.

With the development of the auto industry, there is a growing call to lift that cap; even the government seems to be relaxing its control. In November 2013, Shen Danyang, Spokesperson of the Ministry of Commerce, said that China was going to further loosen up the restrictions on foreign investment in steel, chemicals, automotive and other general manufacturing industries, and that this would include easing the control over foreign investment in terms of registered capital, equity ratios, and business scope.

During the two sessions in 2014, Dong Yang, Standing Vice President of the China Automotive Industry Association, said “Whoever supports easing the restriction is a traitor and collaborator.” This brought the debate over whether to lift the equity cap to a head.

Those who are against lifting the restriction, championed by Dong Yang, all believe that local auto brands are weak and immature and that if multi-national auto makers are allowed to run operations more freely in China, local auto makers will suffer. The auto industries in Brazil and Russia are now in a depression because such restrictions were lifted. However, they have to admit that the drive to lift the equity cap is irresistible. “Even if we do have to loosen up the restriction in the future, we’d better get some protection first, including a policy buffer period of 5-10 years,” say the dissenters.

The loudest voice in support comes from Geely Chairman Li Shufu.

Li once said “The absolute constraint to the development of local-brand automobiles is the equity cap. If this restriction is lifted, even when facing competition with foreign owned companies in China, local auto makers will still have government support.”

Cui Dongshu, General Secretary of China Passenger Car Association, also stated “The restriction on the shareholding ratio will be loosened up sooner or later, but local auto makers do not have to worry because the foreign and Chinese sides of joint ventures will definitely negotiate with and place limits on each other, and foreign brands will not always hold the trump cards.”

Recently, Jaguar Land Rover sued Jiangling Landwind X7 for patent infringement, provoking much discussion. This indicates that local brands are still failing to put adequate input into R&D.

Local brands should do some solid work rather than just skating on the surface,” said Luo Lei.

New energy is one of the rapidly developing fields in China, but there is still a gap compared with foreign countries. It takes at least RMB 3 billion Yuan to develop a battery and generally 5-10 years to commercialize it. Chinese partners to joint ventures tend to eschew investing in such slow-return fields.

Source: Beijing Business Today


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