China is starting to crack open its market a little further to foreign automakers. The Beijing government announced this week that it will phase out requirements for outside companies to have local partners. But undoing some of those long-standing agreements may not make immediate business sense for the foreign companies. HPR’s Bill Dorman explains in today’s Asia Minute.
The Chinese market is critical for any automaker with global ambitions—not just American companies. It’s the biggest market in the world for Volkswagen, by far, and for General Motors for the past six years.
The Nikkei Asian Review reports Japanese automakers saw a rise of about 10 percent in their China sales last year —to nearly 5-million vehicles.
But up to now, every foreign enterprise has needed at least one local partner. GM has ten.
Benefits include local factory production in China—a way around the 25-percent tariffs on foreign-produced cars. There is also local help navigating China’s regulatory complexities—many of the Chinese partners are state-owned enterprises.
Costs are steep: half the profits of the combined operations.
Still, there is value in these relationships.
The Wall Street Journal reports GM and Honda have no plans to dissolve their local partnerships—even when that becomes legal.
The local partner rules have been in place since the 1990’s, while China’s auto industry has developed tremendously in both size and sophistication—in part because of working with overseas automakers.
Some analysts say that means the original goals of China’s foreign partner policy have already been met.