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China to Lift the 50% Joint Venture Ownership Cap for Foreign Automakers on Jan 1, Allowing Them to Wholly Own Their Factories in the Country

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【Summary】Automakers looking to build and sell their vehicles in China will now be able to wholly own their operations and factories in the country, further opening up the world’s biggest auto market to foreign car makers. The previous rules required automakers like General Motors and Ford Motor Co to form joint venture partnerships with a Chinese automaker in order to build cars locally. It was intended to help China's own automakers to better compete with foreign competitors.

FutureCar Staff    Dec 28, 2021 10:45 AM PT
China to Lift the 50% Joint Venture Ownership Cap for Foreign Automakers on Jan 1, Allowing Them to Wholly Own Their Factories in the Country
Tesla wholly owns its Shanghai factory, but the foreign ownership limit for other passenger vehicle (PV) joint ventures will be lifted on Jan 1, 2022.

Automakers looking to build and sell their vehicles in China will now be able to wholly own their operations and factories in the country, further opening up the world's biggest auto market to foreign car makers.

The foreign ownership limit for passenger vehicle (PV) ventures will be lifted on Jan. 1 2022, according to the 2021 version of the Special Management Measures for the Market Entry of Foreign Investment issued by China's National Development and Reform Commission (NDRC). 

Since 1994, China's Automobile Industry Policy required that automakers building vehicles for the local market to avoid import tariffs own no more than 50% of their joint venture operations.

The previous rules required automakers like General Motors and Ford Motor Co to form joint venture partnerships with a Chinese partner to build cars locally. It was intended to help China's own automakers to better compete with growing foreign competition from legacy automakers like BMW, Ford Motor Co, Volkswagen AG and many others wanting to sell their vehicles in the country.

Foreign investors will also be permitted to set up more than two joint ventures with their Chinese partners to manufacture the same type of vehicles starting in 2022, news outlet Gasgoo reports.

Overseas automakers will also be able to form wholly-owned subsidiaries in China. 

The caps on foreign ownership of local special vehicle & new energy vehicle (NEV) ventures and commercial vehicle (CV) firms were removed in 2018 and 2020, which allowed Tesla to establish its operations in China. NEVs in China are classified as fully-electric or hybrid vehicles.

Since Tesla produces only NEVs, it was the first U.S. automaker to fully own its factory and operations in China. By building vehicles in China, the Austin, TX based automaker is not subjected to the import tariffs imposed on other automakers, so it can sell its electric vehicles for a lower price while still maintaining its margins.

As the world's biggest auto market and one of the largest markets for electric vehicles in the world, China is an important marker for Tesla to maintain the company's profitability. Thanks to the revised policy, Tesla was able to build its Shanghai factory in 2019, which it wholly owns. 

Tesla's Shanghai factory was designed to manufacture up to 500,000 vehicles per year and is now building more vehicles than its Fremont, California factory, which was once the company's only global production facility. 

Before the factory in China was built, Tesla exported all of the vehicles sold in China from the U.S., meaning that they were subjected to steep import tariffs that at one point increased by 25% as a result of trade tensions between China and the former Trump administration. 

The tariffs are currently set at 15%.

Tesla sold 56,006 China-made vehicles in September, according to recent data from the China Passenger Car Association (CPCA), which tracks auto sales. It's the highest number of vehicles since Tesla's Shanghai factory began producing cars nearly two years ago.

Now that automakers outside of China will be able to wholly own their operations in the country, Tesla will likely be facing more competition as rivals establish their own production facilities.

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