Come 2022, China will officially scrap ownership limits on foreign automakers and the joint-venture agreements those limits require. However, the country has given BMW and Volkswagen an early lead on removing the limits.
Both German automakers signed agreements with their joint-venture partners in the presence of Chinese Premier Li Keqiang that will remove the caps ahead of schedule, (subscription required) reported Friday. Per China’s current timeline, the caps will fade away this year for any foreign-invested shares in electric and hybrid cars. By 2020, the country will remove the cap on commercial vehicles, and finally, passenger vehicles in 2022.
The early agreement for VW and BMW gives the automakers a significant head start to take controlling interest in their alliances, funnel new investment, and expand their market share in China. The Chinese auto market continues to grow as other markets begin to plateau; reported light-vehicle sales rose 4.6 percent year-over-year in the first half of 2018.
For BMW, the agreement will see the automaker expand production with its joint-venture partner, Brilliance Automotive, to 520,000 vehicles annually in 2019. BMW will also reportedly be the first automaker to own more than 50 percent of the joint-venture in the country, the Chinese state council said. The outgoing rule limited foreign ownership to no more than 50 percent.
At Volkswagen, the automaker agreed to establish a research and development center with Jianghuai Automobile (JAC). The R&D center will help develop electric cars for the Seat brand in China, and VW’s other partnership with FAW Group will focus on electric-car charging infrastructure and connected-car technology. In turn, VW is in talks to raise its stake in FAW above its current 40-percent share.
China’s move with BMW and VW will help further bolster China’s rapid economic growth as it shores up new investment from automakers eager to gain more control of their joint-ventures. Nearly every major Western automaker has opted to begin a joint-venture to avoid China’s hefty 25-percent tariff on imported cars, which makes it almost necessary to build cars locally.