China to remove foreign ownership caps for CV joint ventures from July 23, 2020

Shanghai (Gasgoo)- China's state planner said on June 24 it will remove foreign ownership caps for companies making commercial vehicles (CVs) from July 23, 2020, which might have a significant effect on the reform of China's CV industry.

The equity stake held by Chinese parent company in a complete vehicle manufacturing joint venture should be not less than 50%, and a foreign investor is allowed to build up to two joint ventures that produce same automobile products, according to the 2020 version of two negative lists issued by China's National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM). However, the makers of special vehicles, new energy vehicles (NEVs) and CVs are ruled out.

(Photo source: FAW Jiefang)

“It is good news for the domestic CV industry. The relaxation of foreign ownership restrictions will offer good development opportunities to the joint-venture or foreign-owned CV manufacturers, so as to help them deepen reform,” Zhong Weiping, secretary-general of the commercial vehicle unit of the China Automobile Dealers Association (CADA) told a local media outlet, “for instance, companies can use the chance to moderately adjust and revitalize idle assets, in order to improve some existing joint-venture models that do not befit the current domestic market demands.”

Nevertheless, some industry insiders reckon that the policy change is likely to engender some challenges for China's self-owned CV brands due to the possible fight for ownership in joint ventures or the advent of the firms wholly possessed by foreigner investors.

Prior to the scrapping of foreign ownership caps for CV makers, the restrictions set for producers of special vehicles and NEVs were removed in 2018, according to a negative list issued by the NDRC and the MOFCOM in that year.

Data offered by the China Association of Automobile Manufacturers (CAAM) show that China's CV sales reached 0.52 million units in May, representing a year-on-year hike of 48% and outpacing the overall auto industry by 33.5 percentage points. The volume for the first five months edged down 1% to 1.848 million units.