Date:2Minutes ago Source：China Economic Net Authour： Guo Tao and Wang Yu
On April 25th, the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC), and the Ministry of Science and Technology jointly issued the Medium and Long-term Development Plan for the Automotive Industry (“the Plan”), putting forward the overall objective of becoming a world vehicle power within 10 years, along with 6 targets, 6 major tasks and 8 key projects.
Following this news, we interviewed industry experts and scholars on the major content and background of this Plan.
Restrictions on the JV equity ratio will be loosened in an orderly manner
It is worth noting that, according to Paragraph (I), Section 4 of the Plan, “domestic and foreign investment management systems should be improved and the restrictions on the joint venture equity ratio should be loosened in an orderly manner.” This is of real significance as it is the first time that China has talked about loosening the restrictions on the JV equity ratio since it was imposed in the Policy on Development of Automotive Industry issued in 1994.
There has been a heated debate over whether the restrictions on JV equity ratio should be lifted. Some think they should be lifted as this will promote full competition in the Chinese auto market; some hold the opposite view and think our local carmakers still need protection. In the 2016 Summer Davos Forum, Xu Shaoshi, Director of NDRC, indicated that the government was considering lifting the 50% foreign equity cap, re-igniting the debate over this issue.
It has been reported that in the negotiations on the US-China Bilateral Investment Treaty (BIT) which began as early as 2008, the JV equity ratio was also included as one of the important issues, and in the G20 Summit held in Hangzhou in 2016, China and the U.S. confirmed that major progress had been made in the BIT talks.
In an interview with us, Cui Dongshu, Secretary General of the China Passenger Car Association, said, “this Plan mentions ‘loosening the restriction in an orderly manner’, which has something to do with the BIT talks.”
Wu Songquan, Director of Policy Research Department, Chinese Automotive Technology & Research Centre, also told us that the BIT talks between China and the U.S. last year attracted great attention from the auto industry. Currently, major developed countries like Europe, the U.S., Japan, Korea, the ASEAN countries, India and Brazil have no restriction on the equity of foreign investors.
The equity ratio restriction was imposed mainly to protect large state-owned enterprises. This time round, the Plan says it will be “loosened in an orderly manner”, which will probably bring pressure onto the Chinese partners of most JVs. “The government has said it will gradually loosen it, meaning that we need to work harder on our local brands,” Wu added.
In December 2016, the NDRC and the Ministry of Commerce revised the Catalogue of Industries for Guiding Foreign Investment (2015) and solicited opinions from the public. One of the changes made to this Catalogue was that China would open wider to the outside world. In the manufacturing field, for automobile OEMs and special purpose vehicle manufacturers, the restrictions still remain unchanged - “the Chinese partner should not hold less than 50% of the shares” and “one foreign investor may establish at most two joint ventures that produce the same category of automobiles (such as passenger vehicles and commercial vehicles)”, but in terms of railway traffic equipment, automotive electronics, NEV batteries and motorcycles, the restrictions were lifted, which to some extent shows that China is preparing to gradually loosen the restrictions on the manufacturing field.
NEVs and intelligent connected vehicles will be the opportunities for local brands
Apart from shareholding, this Plan also emphasizes the development of new energy vehicles (NEVs), intelligent connected vehicles and fuel-efficient vehicles, and expects breakthroughs in these three major fields. According to MIIT, the essence of this Plan is to make Chinese-brand vehicles better and stronger, and foster enterprise groups with international competitiveness. In terms of development directions and paths, this Plan takes NEVs and intelligent connected vehicles as the priority areas in the transformation of the whole industry; in terms of measures, it proposes optimizing industrial development, encouraging collaborative innovation within and outside the industry, and promoting global deployment and industrial system internationalization.
Wu Songquan indicated that this Plan was formulated as an implementation plan for Made in China 2025 issued in May 2015, where fuel-efficient vehicles, NEVs and intelligent connected vehicles were listed as priorities in China’s economic development.
Regarding this, Cui Dongshu expressed similar views. In our interview, he said “This Plan is a like a guide to the future development of the automotive industry; but accomplishing the goal requires the joint efforts of enterprises and the whole industry.”
“In times of industrial transformation, this is perhaps a great opportunity for local brands if they ever want to make a breakthrough. Once local brands achieve real results in these three fields, especially in NEVs and intelligent connected vehicles, they will be much stronger in the market,” Wu Songquan added.
Note that Made in China 2025 did not give specific targets for the total sales of NEVs in 2020 and 2025. But with this Plan issued, these targets are officially set.
According to the Plan, by 2020:
The annual sales of NEVs will be 2 million vehicles;
The specific energy of power battery cells will be at least 300Wh/kg and even 350Wh/kg if possible;
The specific energy of power battery systems will be 260Wh/kg if possible; and
The cost will be reduced to RMB 1 Yuan/Wh or less.
The sales of NEVs will account for 20% or more of the total auto sales;
The specific energy of power battery systems will be up to 350Wh/kg.
In terms of intelligent connected vehicles, it is pointed out in the Plan that by 2020:
Over 50% of new cars will be provided with DA (Driver Assistance), PA (Partially Automation) or CA (Conditional Automation) systems;
Over 10% of them will be provided with connected ADAS;
Vehicles will meet the requirements for urban intelligent transportation construction.
And by 2025:
Over 80% of new cars will be provided with DA, PA or CA systems, of which 25% of new cars will be provided with PA or CA;
Highly and fully autonomous automobiles will enter the market.
In terms of fuel-efficient vehicles, it is stated in the Plan that by 2020:
Fuel consumption per passenger vehicle will be 5L/100km;
The application rate of fuel-efficient technologies like idling start-stop will be over 50%
And by 2025:
Fuel consumption per passenger vehicle will be reduced by 20% relative to 2020;
Fuel-efficient technologies like idling start-stop will be generally applied.
From MIIT’s clarification of the Plan, we can see that the essence is to make Chinese-brand vehicles better and stronger and foster enterprise groups with international competitiveness. In terms of development directions and paths, this Plan takes NEVs and intelligent connected vehicles as the priority areas to lead the transformation of the whole industry; in terms of measures, it proposes optimizing the industrial development environment, encouraging collaborative innovation within and outside the industry, and promoting global deployment and industrial system internationalization.