Cars

Auto parts JV proposals spark debate

By Lan Lan (China Daily)
Updated: 2011-06-02 11:05

BEIJING - The national guidelines on auto parts joint ventures for new-energy vehicles released in April have sparked heated discussions over the pros and cons of the proposed policy, according to industry sources.

The National Development and Reform Commission (NDRC) released a draft Catalogue for Guiding Foreign Investment in Industry, which has been thrown open for comment. The draft indicates that foreign investors will be limited to a maximum 50 percent stake in joint ventures producing key components for new-energy vehicles.

China already has a 50-50 rule for auto manufacturing joint ventures, but the proposals are the first time such an investment cap has been imposed on auto parts companies.

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Industry experts said it is also a thorny issue for China's new-energy vehicle development road map for the next decade, which is awaiting regulatory approval and is expected to be formally released later this year.

It is a "highly sensitive issue" because the investment cap has been raised from the 49 percent proposed in a previous draft at the end of last year, according to industry experts.

"Basically, Chinese automakers were not successful in mastering the core technologies of key components for conventional gasoline-fueled cars. This new policy aims to change that situation so that Chinese companies can take the lead in the production of new-energy vehicles," said Mei Songlin, general manager of the Beijing branch of Nomura Research Institute Shanghai Ltd.

"It's a critical issue concerning China's new-energy vehicle development over the next decade. Many industry insiders see the previous 'no bottom line' for foreign auto parts companies as a reason for China's failure to develop auto technologies," said a senior executive at a domestic automaker, speaking under condition of anonymity.

However, many foreign auto-parts manufacturers that have set up wholly owned companies in China, or hold a majority share in domestic joint ventures, have expressed great concern over the possible regulation.

Dominik Declercq, chief representative of the European Automobile Manufacturers' Association, said that he is worried that foreign investment in auto manufacturing will not be as encouraged as before.

"We are concerned about this new rule because it means a tightening of foreign investment policy, whereas generally we would instead welcome a further relaxation of the investment rules," he said, adding that the association's member companies have "no common position" on this issue at the moment.

Business councils and industrial associations in Europe and the United States are lobbying the Chinese government to cancel the proposed investment cap, sources said.

"If the new rule takes effect, foreign auto parts makers will need to establish new joint ventures for key component manufacturing, or reduce their shares in the original joint ventures," said a component company executive who declined to be named.

According to the draft, the phrase "key components" covers everything from batteries to control systems, which means a host of components makers involved in new-energy vehicle technologies will be affected.

The growth of new-energy vehicles, especially pure-electric cars, is heavily reliant on government investment and stimulus policies in the initial stages. Therefore much of the investment will come from Chinese taxpayers, said John Zeng, director of Asian automotive forecasting at JD Power Asia Pacific.

"If foreign companies also enjoy the investment and incentives, it's fair for them to contribute more, such as transferring more technologies to China or giving the local companies a greater say," he said.

Jia Xinguang, an auto analyst, said the effectiveness of the policy will be shown by whether it can help local companies gain competitive edge.

"The most crucial issue is to enhance the innovation and research capabilities of domestic automakers," he said.