At the end of 2021, the mainland government issued a policy indicating that from January 1, 2022, the restriction on the share ratio of foreign-funded enterprises in the passenger car sector will be abolished, and the commitment proposed in 2018 to gradually abolish the share ratio restriction in all areas of the automobile in 4 years is fulfilled in 2018 - the joint venture share restriction in the field of pure electric vehicles and commercial vehicles was abolished in 2018 and 2020.
The policy also allows the same foreign investor to establish two or more joint ventures in China to produce the same type of vehicle products.
Over the years, many foreign companies have benefited from this policy and have gained more development opportunities in China. BMW and Volkswagen increased their share in the joint venture to 75 percent; Tesla used the policy to become The first foreign investor in China to build a wholly owned factory.
Although the drawbacks of abolishing the share ratio restriction have not yet been shown on a large scale, Dong Yang, former executive deputy secretary general of the China Association of Automobile Manufacturers and vice chairman of the China Electric Vehicle 100 Association, told Che Yun that from the long-term development assessment, (the joint venture company Chinese and foreign capital to achieve control) will not have a large number of follow-up situations. But there are still people who have shown concern about this and brought it to the ongoing two sessions.
Zhu Huarong, chairman of Changan Automobile
Zhu Huarong, a representative of the two sessions and chairman of Changan Automobile, said that based on the latest policies and regulations officially announced to the public, there are theoretically no obstacles for foreign-funded car companies to create new wholly-owned enterprises, acquire existing other enterprises, increase the shareholding ratio of existing joint ventures, and find new partners to establish joint ventures.
He pointed out that the problem is that if the foreign car companies cannot reasonably guide the business layout (including new investments, etc.) of foreign car companies in China after the liberalization of the share ratio, it may lead to the emptying of existing joint venture production capacity and waste of car-making resources; in order to promote the development of various places as the entry point, foreign car companies to obtain local policy support from many provinces and cities, resource occupation and overlap, easy to cause unfair competition in internal and external development and other issues.
Zhu Huarong's concerns are overlapping with the rapid transition of China's automotive industry to electrification and intelligence, while joint ventures are making slow progress. His concerns are at stake for the future of the joint ventures.
Joint venture capacity has been shorted
One of Zhu Huarong's concerns is that some of the existing poor joint venture car companies will face a continuous embarrassing situation, first of all, the poor capacity utilization rate will lead to waste of car manufacturing resources.
In recent years, as the sales volume of China's automobile market continues to decline and automobile consumption continues to upgrade, the sales of joint ventures such as Dongfeng Yueda Kia, GAC FCA, and Changan Ford have suffered a cliff-like decline, and the by-product of this is the extremely low capacity utilization rate, and the operating rate of some enterprises is even less than 20%.
Therefore, how to dispose of these million-level idle production capacity has become the top priority for both The Chinese and foreign parties in the joint venture.
Previously, ideal automobile with good development momentum took over the first factory of Beijing Hyundai in Shunyi, Beijing, which was a troublesome matter for Beijing Hyundai and a successful case of revitalizing existing production capacity.
But not all joint ventures in the downward spiral will be as lucky as Beijing Hyundai.
The Changan Ford joint venture between Changan Automobile and Ford Motor, led by Zhu Huarong, although sales in 2021 rose 20.29% year-on-year to 304,700 units, it was less than one-third of the peak of 2016. At present, Changan Ford has five vehicle factories in Chongqing, Harbin and Hangzhou, with a total production capacity of 1.6 million vehicles, and its plant operating rate has been less than 20% according to the sales volume in 2021.
Although Changan Ford's market sales have a warming trend, I am afraid that no one will believe that it can return to the peak. Therefore, the top priority facing Zhu Huarong and Ford's management is how to deal with Changan Ford's extremely low capacity utilization.
Selling spare capacity to new cars may be a good choice, but there are still no rumors about Changan Ford selling the factory. Instead, the Beijing Hyundai factory in Chongqing was once again rumored to be sold to Ideal Motors.
In recent years, second-tier joint ventures led by Changan Ford have fallen into the dangerous trap of blind expansion, focusing only on immediate sales without thinking deeply about long-term development.
Therefore, Zhu Huarong said at the proposal of the two sessions that it is recommended to update and improve the "Regulations on the Administration of Investment in the Automobile Industry" and other relevant national policies, strengthen the control of investment access policies in the automotive industry, strengthen the safety review of foreign-related investment projects (production capacity), and prevent blind distribution and duplicate construction investment.
Strengthen the supervision of foreign-funded car companies
With the joint venture share ratio restriction being completely abolished, many foreign car companies have taken action around the policy - BMW has increased its equity in BMW Brilliance to 75%; Volkswagen Group has become the controlling shareholder of Volkswagen Anhui; Audi FAW New Energy Joint Venture Company, which accounts for 75% of Audi, has also been established; Dongfeng Motor in the Dongfeng Yueda Kia Joint Venture has withdrawn, and Yueda Investment recently announced that it will abandon the capital increase, which is seen as a signal that Kia is expected to gain control of the new joint venture.
Recently, it was also rumored that GM plans to set up a Tesla-like company in China to sell models other than joint ventures such as Buick, Chevrolet, and Cadillac.
In response, GM China President Bai Li told Chinese media that the new business will be wholly owned by GM, and other details such as which models the new brand plans to sell or how these models will be marketed and distributed will be announced later.
It can be seen that without the shackles of joint venture share ratio restrictions, many foreign-funded companies want to try more in China, the world's largest automobile market.
Therefore, in round after round of mutual games between China and foreign countries, unfair phenomena may be bred, which is also a problem that Zhu Huarong is worried about. He said that under the pretext of promoting the development of various localities, foreign-funded car companies have obtained local policy support from many provinces and cities, and resource occupation and overlap are easy to cause problems such as unfair competition in internal and external development.
When Tesla established the Shanghai Gigafactory in 2018, it received huge loans and a series of preferential conditions from the Shanghai Municipal Government, and achieved its goal of building a factory in China almost out of its own pocket, and the speed of factory construction far exceeded Tesla's expectations.
Today, the Shanghai Gigafactory not only supplies the domestic market, but also tesla's largest export center in the world, becoming a key part of Tesla's global strategic map. This is also one of the reasons why Musk has repeatedly shown favor with China. However, few Chinese companies, such as china's new car-making forces, can obtain the same preferential policies as Tesla.
Recently, tesla's location for China's second factory has been rumored to be boiling, and cities such as Shenyang, Qingdao, and Yibin have been rumored to be the location of the factory. Although Tesla has denied it, it has proved that local governments are eager for Tesla's talents, which may lead to unfair competition.
This is also a concern of Zhu Huarong, who suggested that the supervision of preferential conditions such as financial taxation by local governments over foreign-funded car companies should be strengthened to avoid foreign investment in the game between local governments to repeatedly obtain preferential policies.
It can be seen that after the abolition of the joint venture share ratio restriction, more and more companies want to establish wholly-owned automobile enterprises in China. Among them, it is also urgent to strengthen the supervision of foreign-funded enterprises.
Foreign investment should guide the transformation of joint ventures
The timing of the cancellation of the joint venture share ratio restriction is also coincidental, just in the wave of electrification and intelligent transformation. Among them, joint ventures in the 50:50 operating model are difficult to catch up with the pace of transformation of the industry due to long decision-making time and inefficient management.
Due to the abolition of the restriction on the joint venture share ratio, the electrification and intelligent transformation of foreign companies in China may be carried out in the mode of independent companies, which casts a shadow on the future fate of the joint venture companies.
Not long ago, Ford Motor announced that it will be independent of the fuel vehicle business and the electric vehicle industry, and the two operate independently and bear their own profits and losses. Ford's move to draw a line between the two businesses has led many to believe that the fuel vehicle business may have no vitality compared to the more futuristic electric vehicle business. The move may also make the fuel vehicle division less attractive to talent.
Changan Ford, which is far away in China, has operated the electric vehicle division independently before Ford's headquarters.
At last year's Guangzhou Auto Show, Chen Anning, president and CEO of Ford China, said in an interview that Ford's electric vehicle division in China had long decided to operate independently and launched an independent brand, "Ford Select.".
Therefore, Ford's first domestic pure electric SUV in China, The Mustang Mach-E, adopts a direct sales model, with exclusive APP and mini programs, "(Electric Vehicle Division) and Fuel Vehicle Division are independent of each other." Chen Anning said.
This brings a lot of uncertainty to the future of Changan Ford. Therefore, Zhu Huarong suggested that local government policies should be guided and foreign parties should be guided to support the electrification transformation of existing joint ventures.
Where is the future for Changan Ford and many joint ventures? It is believed that with the acceleration of the pace of electrification and intelligent transformation of the industry, it will soon be known.
Che Yun Summary:
In the early days of China's auto industry, a series of joint ventures sprung up like mushrooms to awaken the sleeping elephant of China's auto market, thus driving the Chinese market to prosperity until it became the world's first. From this point of view, the joint venture is indispensable.
However, as the wave of electrification and intelligence first exploded in China, the successful experience of the joint venture was invalidated at this time. They came to a crossroads of fate.
The abolition of the restriction on the joint venture share ratio has made many foreign companies have made a wishful thinking in their hearts, and they are no longer satisfied with facing China, the world's largest automobile market, in the joint venture model.
Will the fate of the joint venture come to an end at some point in the future? Maybe, but at least not now.
Zhu Huarong and the founders of many joint venture models also want to help the building fall and turn the tide from the fall.