China makes BMW the envy of foreign carmakers, giving it green light to raise its venture stake

Daniel Ren
China makes BMW the envy of foreign carmakers, giving it green light to raise its venture stake

BMW has received the green light to raise its stake to 75 per cent of its onshore venture, becoming the first foreign manufacturer to get a super majority control, in a move by the Chinese government to engender envy among American businesses amid the Sino-US trade war.

The German carmaker, currently holding 50 per cent of its venture with Brilliance China Automotive Holdings, is likely to restructure the ownership by 2022 when the relevant rules by Beijing become effective.

“We will sign an agreement or a contract if you’re ready,” Chinese Premier Li Keqiang said on Monday during a meeting in Beijing with European Union politicians and business leaders that included BMW representatives, according to a Bloomberg report.

Munich-based BMW would not comment on the plan to raise its stake in the venture, but said in a statement that the strategic positioning of both shareholders will be further improved.

Is Tesla’s Shanghai plant announcement a matter of auspicious timing?

The Chinese leadership’s approval of BMW’s plan came a week after Tesla, the bestselling US electric carmaker, signed an agreement with the Shanghai government to build its first overseas assembly plant at Lingang, an areas close to the city’s free-trade zone, with an annual capacity of 500,000 units.

The simmering Sino-US trade war has raised concerns about China’s economic outlook and business prospects for multinational firms operating on the mainland. To allay such concerns, Beijing is handing out concessions to global companies to maintain their investment in the world’s second-largest economy.

A consolidated foothold in China will effectively help BMW offset the negative impact from the Sino-US trade war since it is the biggest exporter of vehicles from the US to China.

Global carmakers that want to assemble and sell in the world’s largest vehicle market are required to form ventures with local Chinese companies, and are limited to no more than two ventures, and allowed to own no more than 50 per cent stake.

In April, the Chinese government said it would scrap the 50 per cent ownership cap on foreign passenger vehicle makers by 2022.

Infographics: Global vehicle assemblers and their Chinese venture partners

“It is still highly likely that BMW’s stake in the venture will be raised in 2022 because the new rules will take effect at that time,” said Cui Dongshu, the secretary general of the China Passenger Car Association. “Other foreign carmakers, now subject to the 50 per cent ownership limit, are also expected to apply to raise their stakes.”

Last week, BMW and Brilliance signed a pact to expand the production of the Shenyang-based venture to 520,000 units in 2019, after it spent US$1.2 billion in 2017 to lift the annual capacity to 450,000 vehicles.

An expanded mainland output can cut BMW’s reliance on imports from its US-based factories.

Brilliance China’s H shares slumped 2.1 per cent to HK$11.4 (US$1.45) on Monday.

This article China makes BMW the envy of foreign carmakers, giving it green light to raise its venture stake first appeared on South China Morning Post

For the latest news from the South China Morning Post download our mobile app. Copyright 2018.

More from South China Morning Post: