China could relax automotive policy to allow foreign EV development in the country

20 September 2017

China could relax automotive policy to allow foreign EV development in the country

20 September 2017

The Chinese Government is considering a plan to allow foreign vehicle manufacturers to set up wholly owned electric vehicle (EV) businesses in its free-trade zones, in what would be a major change of the country’s automotive industry policy.

The plan is still under discussion and no final decision has been made, but any change could be put in place as early as next year. If it is, it would be a big departure from existing rules, designed to protect Chinese automakers from serious competition, and allow them to focus on development of their own models in their home market.

Current rules state that foreign car companies must set up joint ventures (JVs) with local counterparts. A relaxation of these rules will allow carmakers such as Tesla, BMW or Toyota to set up a fully owned manufacturing operation in what would be the biggest global market for EVs.

In addition, the ability to set up a wholly owned company in the country would allow manufacturers to take advantage of cheaper labour rates and development, which could prove beneficial with a number of companies developing electric versions of current models, or new lines and brands, to meet expected demand following the Dieselgate scandal and environmental concerns.

Ford is exploring setting up a joint venture to produce electric vehicles in China with Anhui Zotye Automobile while Volkswagen Group (VW) has partnered with Anhui Jianghuai Automobile Group (JAC) to make electric cars. VW and its brand SEAT was recently denied permission to use its name on vehicles produced in its JV.

China's Ministry of Commerce, which is responsible for formulating policy governing foreign direct investments, said it will ‘actively implement the opening up of the new-energy manufacturing sector to foreigners, together with other departments under the direction of the State Council,’ according to Automotive News.

The so-called 50-50 rule for Sino-foreign joint ventures was introduced in 1994 to ensure that China's then-fledgling auto industry could benefit from technology transfer by jointly operating factories with global auto companies such as Volkswagen and General Motors.

Earlier in September, the country put the automotive industry on alert by becoming the latest to seek an end to the sale of traditional engines in the market, switching to hybrid or electric vehicles only. Such a move could see a dramatic shift in the automotive industry, with manufacturers pushing development of EVs up a level in order to meet demand and remain relevant.

In addition, the government is imposing strict quotas on the number of EVs available from carmakers to the public, with 8% of vehicle sales by brand requiring some form of electrification in 2018, growing to 12% by 2020.