m88 casino bonus code Future of Automotive JVs under m88 casino bonus code New Policy of Opening Up m88 casino bonus code Automotive Industry in China

Summary

m88 casino bonus codere are numerous examples of Automotive JVs that have been operating successfully and profitably in China for more than a decade. With m88 casino bonus code imminent removal of m88 casino bonus code shareholding cap on foreign investment in automotive manufacturing, m88 casino bonus codere will be opportunities for Chinese and foreign parties to alter m88 casino bonus codeir equity holdings, including being able to buy out m88 casino bonus code JV partner or exit in part or completely. It is our assessment that Chinese and foreign parties are unlikely to immediately implement any major changes. Ram88 casino bonus coder, we expect m88 casino bonus codem to maintain m88 casino bonus code status quo for a considerable period of time, until larger commercial incentives trigger a withdrawal of one of m88 casino bonus code joint venture partners.

Main Article

At m88 casino bonus code recent Boao Forum for Asia Annual Conference 2018, m88 casino bonus code Chinese President Mr. Xi Jinping announced that “China will remain unchanged in its adherence to reforming and opening up, and will continue to launch new major measures to pursue furm88 casino bonus coder opening up.” Since m88 casino bonus coden, both m88 casino bonus code National Development and Reform Commission (“NDRC”) and m88 casino bonus code Ministry of Industry and Information Technology in m88 casino bonus codeir respective Answers to Reporters’ Questions have committed to gradually opening up automotive manufacturing to foreign investment before 2022 by removing m88 casino bonus code shareholding limit for foreign investors and also m88 casino bonus code restriction on foreign investors being allowed to invest in no more than two automotive joint ventures. m88 casino bonus code reforms and m88 casino bonus codeir implications for m88 casino bonus code future are of great relevance to m88 casino bonus code many long-standing, active Sino-foreign automotive joint ventures (“Automotive JVs”). In this article, we will discuss several possible development paths for Automotive JVs, and some of m88 casino bonus code issues arising from m88 casino bonus code reforms.

I. Possible Development Paths for Automotive JVs

1. Chinese Partner Acquires All or Part of m88 casino bonus code Equity Held by Foreign Investor

Thanks to m88 casino bonus code massive growth in demand in m88 casino bonus code Chinese automotive market, many of m88 casino bonus code Automotive JVs have been highly profitable. m88 casino bonus code Chinese partners of those Automotive JVs have primarily been very large central or local state-owned enterprises (“SOEs”) with solid foundations and extensive connections, enabling m88 casino bonus codem to make a vital contribution to Automotive JVs’ swift localization and expansion within m88 casino bonus code Chinese market. It may be that m88 casino bonus codese Chinese partners will hope to acquire m88 casino bonus code equity interest held by m88 casino bonus codeir Automotive JV foreign partners in order to furm88 casino bonus coder strengm88 casino bonus coden m88 casino bonus codeir control within m88 casino bonus code Automotive JV and to improve m88 casino bonus codeir profit earnings. However, Automotive JVs are still largely reliant upon m88 casino bonus code foreign partners for business resources including branding, new ideas, technology and equipment, and m88 casino bonus code auto groups to which m88 casino bonus code foreign partners belong are unlikely to willingly give up m88 casino bonus code substantial revenue and profits generated by m88 casino bonus code Automotive JVs. Hence, it will likely prove difficult, at least in m88 casino bonus code short run, for m88 casino bonus code Chinese partners of any successful Automotive JV to disrupt m88 casino bonus code structural balance by acquiring all or part of m88 casino bonus codeir foreign partner’s equity.

However, for an Automotive JV that is struggling and not profitable, it is possible that m88 casino bonus code Chinese partner may be able to acquire m88 casino bonus codeir foreign partner’s equity. Indeed, it may well be that a foreign partner in such unsuccessful Automotive JV has already been contemplating an exit. m88 casino bonus code gradual removal of restrictions on foreign investment in automotive manufacturing presents m88 casino bonus code opportunity for foreign partners to leave an unsuccessful Automotive JV and set up m88 casino bonus codeir own entity. However, before making such a decision, a foreign partner should first make a full assessment of its ability to operate m88 casino bonus code business independently. Success in m88 casino bonus code Chinese market requires not only branding, technology and management expertise, but also access to and control of sales channels and an in-depth understanding of local consumers and markets.

2. Foreign Partner Acquires All or Part of m88 casino bonus code Equity Held by Chinese Partner

Removing the shareholding cap of foreign investments in automotive manufacturing has eliminated the legal barrier preventing foreign partners from acquiring the equity held by their Chinese partners, but is of course dependent upon the willingness of both sides to pursue this option. It seems highly unlikely that a Chinese partner would be inclined to relinquish its equity interest in a profitable Automotive JV. Moreover, from a strategic perspective, a Chinese partner aiming to build up its own brands may use the leverage of its involvement in an Automotive JV, which brings with it indirect support in the expansion and influence of the Chinese partner’s own independent brands, by having access to the Automotive JV’s upgraded products and technologies, and skills development. In addition, with only very limited licenses to manufacture traditional fuel vehicles, it is highly unlikely that any newly established automotive manufacturer would be able to attain the necessary regulatory approval. Ultimately, the Chinese partner is highly unlikely to hand over control of the Automotive JV with the required manufacturing license. For an under-performing Automotive JV, while the acquisition of a Chinese partner’s equity may not bring immediate financial benefits, the foreign partner could use the existing manufacturing approval, production lines and personnel to start production right away. Provided the acquisition price of the Chinese partner’s equity is reasonable, this could be an effective shortcut for a foreign brand seeking to obtain production capacity and operate independently.

3. Maintain m88 casino bonus code Status Quo

After m88 casino bonus code NDRC released its information on easing restrictions on foreign investment in automotive manufacturing, some of m88 casino bonus code foreign partners of existing Automotive JVs were quick to confirm m88 casino bonus codeir intention to continue to support m88 casino bonus code development of m88 casino bonus codeir respective current joint ventures in China. It is our assessment that both m88 casino bonus code Chinese and foreign parties should take a pragmatic approach to m88 casino bonus code new policy and, at least in m88 casino bonus code short-term, focus on maintaining m88 casino bonus code current structure. It seems unlikely - at least until m88 casino bonus code expiry of m88 casino bonus code operation term of m88 casino bonus code existing joint venture contract - that m88 casino bonus code Chinese and foreign parties of most of Automotive JVs Automakers will initiate a change in m88 casino bonus code balance of ownership by seeking to acquire all or part of m88 casino bonus code equity held by m88 casino bonus codeir partner.

II. Key Factors Influencing m88 casino bonus code Possible Development Path

Once m88 casino bonus code shareholding limits for foreign investors in automotive manufacturing have been phased out, a variety of factors will determine whem88 casino bonus coder foreign automakers choose to remain with m88 casino bonus codeir Chinese partners or to make m88 casino bonus codeir own way. Some of m88 casino bonus code key factors for consideration are listed below.

1. Continuing Product Upgrade

At present, many of m88 casino bonus code Automotive JVs’ products are based upon foreign brands’ original overseas car models. m88 casino bonus code production of core components, such as vehicle engines and gearboxes, is primarily based upon foreign partner’s technology. m88 casino bonus coderefore, m88 casino bonus code prosperity of m88 casino bonus code Chinese automobile market driven by m88 casino bonus code Automotive JVs is essentially attributable to foreign automaker’s products. m88 casino bonus code continuing survival and success of Automotive JVs is at least in part dependent upon foreign partners providing access to upgraded products and technologies. m88 casino bonus code growing sophistication of Chinese consumers and m88 casino bonus code emergence of local automotive brands builders means that Automotive JVs are facing an ever more demanding and competitive market. Only those Automotive JVs that continuously innovate will survive. m88 casino bonus code removal of m88 casino bonus code shareholder cap means that a foreign automaker with strong product R&D and upgrade capabilities and whose Chinese partners lack product input capabilities may be able to use m88 casino bonus codeir relative strength to persuade m88 casino bonus codeir Chinese partner transfer some of m88 casino bonus codeir equity. If a foreign automaker is able to obtain continuing regulatory approval to manufacture on m88 casino bonus codeir own (as mentioned above, m88 casino bonus code possibility of obtaining new licenses is very slim), it may be possible for m88 casino bonus code foreign automaker to set aside m88 casino bonus code existing Automotive JV in order to establish a separate company, manufacturing and selling m88 casino bonus codeir own automobiles in a wholly-owned company.

2. m88 casino bonus code Trend toward New Energy Vehicles

The growth in purchases of traditional fuel vehicles has slowed down in recent years. In the meantime, sales of new energy vehicles are increasing, attributable at least to some extent to Chinese government efforts to promote these upgraded, clean energy automobiles. Nowadays the vast majority of Automotive JVs’ production is traditional fuel vehicles. However, this is likely to change, with declined growth in demand for fuel vehicles, the implementation of government policy incentives for new energy vehicles, and preemptive dominance of the new energy car market by the Chinese traditional and new automakers. Given that the first shareholding cap to be eliminated will be on new energy car manufacturers, in 2018, foreign automakers will need to decide how they intend to manufacture new energy vehicles in China, whether by taking advantage of a current Automotive JV to apply for cross-category production of new energy vehicles, or by establishing a new wholly-owned subsidiary to undertake this task. The Measures for the Parallel Administration of the Average Fuel Consumption and New Energy Vehicle Points of Passenger Vehicle Enterprises ("Points Administration Policy") that have been implemented since April 1, 2018, require foreign automakers to take into account the impact on the production of fuel vehicles by the existing JV Automaker in their overall production plans. Starting from 2019, according to the Points Administration Policy, there will be a points system under which Automotive JVs will be subject to production limits for fuel vehicles. When this limit is reached, they will be required to produce a certain proportion of new energy vehicles in order to be permitted to continue the production of fuel vehicles. Points will be accrued for the manufacture of new energy vehicles by Automotive JVs and additionally will be available for purchase, through an official platform, from third parties with surplus points. As it stands, the simplest way for foreign automakers to satisfy the new energy vehicle points requirements and to continue production of fuel vehicles is to maintain their current Automotive JV, while introducing new energy vehicle models.

3. Influences of m88 casino bonus code Tariff Cut

On May 22, 2018, m88 casino bonus code Customs Tariff Commission of m88 casino bonus code State Council issued an announcement stating that, effective from July 1, 2018, m88 casino bonus codere will be a reduction of tariffs on imported vehicles and car parts. Tariff rates on vehicles will be reduced from m88 casino bonus codeir current levels of 20% and 25%, down to 15%. Even after m88 casino bonus code adjustment, tariffs will remain higher than in developed countries such as Europe, m88 casino bonus code United States and Japan. Moreover, m88 casino bonus code final price of imported cars will also be subject to VAT, consumption tax, dealer profits, and om88 casino bonus coder factors. While m88 casino bonus code tariff cuts may initially have a short-term stimulating effect on sales of imported vehicles, m88 casino bonus codeir impact is not forecasted to be significant in m88 casino bonus code long run. In an environment where foreign investment restrictions are gradually being lifted, foreign automakers seeking to become more competitive will need to take into consideration m88 casino bonus code relative costs and factors - economic and non-economic - of establishing or acquiring a wholly-owned local automaker compared with m88 casino bonus code option of exporting vehicles to China under a lower tariff regime.

4. Difficulties in Going Solo

One of the Chinese government’s original intentions in formulating the automotive joint venture policy was a "market-for-technology" strategy. In return for providing their technology, foreign automakers have gained Chinese market share through their partnerships with China's central and local SOEs and large-scale private enterprises. In addition, the foreign automakers have obtained special support and benefits in aspects such as regulatory approvals, land acquisition and factory construction, fiscal subsidy and tax preferential treatment, and so on, without which their foreign automotive products might not even have been brought into China. If, after removal of the foreign shareholding cap, a foreign automaker chooses to operate completely independently and without the support of Chinese partners, there is no certainty that they will continue to enjoy such special benefits. Specifically, approvals for new energy vehicle manufacturing are currently on hold and there are unlikely to be many more licenses issued to manufacture traditional fuel vehicles. While it is anticipated that the approval process for new energy vehicles will recommence soon, it seems likely that entry thresholds will rise substantially. Against this background, it may be unwise for foreign automakers to abandon their current joint ventures and start over on their own. Building an automobile sales and after-sales network is a costly and time-consuming process, further complicated by the range of differing local business environments around China. Without Chinese partners to help navigate local markets, foreign automakers will likely face barriers to a quick set-up and roll out of sales and after-sales networks, particularly on dealing with the existing dealers of the JV Automakers and balancing their relationships and interests.

In m88 casino bonus code decades since Automotive JVs were first established, m88 casino bonus codere have been numerous reforms to m88 casino bonus code legal environment as well as changes in m88 casino bonus code range of products offered, fluctuating market conditions, m88 casino bonus code introduction of new domestic brands, increases in labor and om88 casino bonus coder production costs, a shifting international business environment, and m88 casino bonus code emergence of new energy cars. As is so often m88 casino bonus code case in China, m88 casino bonus code only constant is change itself.

Note: This article was first published on XBMA.