BMW will become the very first foreign auto manufacturer to be a majority shareholder in a Chinese joint venture, a clear sign that the Chinese government’s pledge to open up to foreign global corporations is going ahead. Since the People’s Republic started to open its doors to the world, there has been strict controls on company ownership. Those who wished to get a slice of the Chinese pie needed to create joint ventures, in which a homegrown Chinese company was in the majority – not so now, it would seem.
The precise ownership and structure of the new deal with its traditional joint venture partner, Brilliance Auto, has not been revealed but an announcement is expected soon. BMW is currently a 50% stakeholder, but this is expected to rise to at least 75%; although, there is no confirmation on how much the 40.5% currently owned by Brilliance will shrink to.
Of course, with the looming trade war between China and the US of A, increasing the ownership in China could be viewed as a smart move. Believe it or not, BMW is very reliant on the output of its US-based manufacturing units, where its line of SUVs for the rest of the world is produced. Of course, if trade tariffs against US-made products come into force, then the well-known German manufacturer will perversely fall foul of them as prices for US-produced vehicles will increase.
BMW is not the only German company in this particular and proverbial boat. Daimler has already issued a profit warning that increased prices will result in falling sales in the Chinese market, especially for SUVs. News wasn’t so good for Brilliance either, with shares falling some 20% as investors worried that they would miss out on the venture’s future profit growth.
Global companies have for years called for better access to what was, for all intents and purposes, a very protected market. In April of this year, the Chinese government announced new guidelines for the phasing out of foreign ownership restriction, opening the door for the eventual buy-out of the joint venture partners and allowing 100% foreign-owned companies to operate there.
China will, in fact, scrap the 50% ownership cap for electric vehicles by this year as it vies to become a leader in the world of New Energy Vehicles, as they are locally known. Commercial vehicles will be next, with the cap being phased out by 2020, and following that, passenger vehicles by 2022. A brave new world is looming for carmakers in the People’s Republic.
