Beijing is abolishing the joint-venture requirement for foreign carmakers. But the move comes too late for big German players, who are already too intertwined with their Chinese partners, says DW’s Frank Sieren.
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The Beijing Auto Show is now the biggest of its kind in the world. Right from the start of this year's edition there have been heated discussions about innovations in e-mobility that could be game changers as well as the political reforms that Beijing has finally announced after years of criticism.
The requirement on foreign carmakers to enter into a joint venture will apparently be abolished this year. First, for the makers of electric and hybrid vehicles, then by 2020, for trucks and, eventually, for the whole sector by 2022. Tariffs on cars will also be decreased "significantly." This could end up being the most comprehensive and daring market opening that the government has embarked on over the last few years.
Foreign firms no longer a threat
Since China opened up, foreign firms have been required to enter a joint venture with a Chinese partner and be satisfied with a maximum of 50 percent of the proceeds. The idea was to ensure that a still weak China would not be overtaken by foreign manufacturers.
That risk is now very limited. In 2010, China surpassed Japan as the second most important economy in the world. Only the US is stronger. With 6.8 percent growth in the economy in the first quarter, China has once again has surpassed expectations, even its own. Having said that, the fact that China's per capita income is currently on a par with that of Macedonia means there is still plenty of potential.
As a trade war with the US looms, Chinese President Xi Jinping can now use this trump card to prove that the world can count on him for better market conditions and fair competition.
Of course, Xi also knows that the big Chinese carmakers are now robust enough to survive such an opening and could even become stronger with more competition, especially in the area of e-mobility, where Chinese firms are currently the frontrunners.
Flourishing Chinese car market
While Europe's car market is stagnating, 28.9 million vehicles were sold in China last year. In the first quarter of 2018, the small-vehicle market rose by another 4 percent. By contrast, the number of new registrations in the EU decreased by 5.4 percent to just about 1.8 million.
The fact that Chinese makers such as SAIC and BAIC are now making good cars is also due to the know-how of their partners in joint ventures. Chinese companies have not only been burdensome opportunists, however. They served the purpose of minimizing risk and opening doors, thus helping to lower costs or obtain better loans and authorization, for instance from local governments to build new plants. It could be that some companies will voluntarily choose this path in future so as to get a foothold in China.
The first German company that dared make the move to China was Volkswagen, 30 years ago. This venture continues to pay off today. Every other VW car is now sold in China. The joint ventures with SAIC and FAW have brought a lot of profit to the company, which has since sold over 27 million vehicles.
The situation is similar for BMW and Daimler, which has two Chinese partners - BYD and BAIC - but also a big Chinese shareholder in Geely CEO Li Shufu. Last year, Mercedes sold 588,000 premium cars in China. Now, the Bavarian company is planning to start producing electric Minis in China alongside the Baoding-based Great Wall company.
No German cars among top-selling all-electric vehicles
Sales of hybrid and all-electric cars surged last year to 3.79 million, marking a 28-percent jump and accounting for a 4.4- percent overall market share. Here are the five best-selling all-electric vehicles of 2017.
Image: imago/A. Prost
Crossover SUV in 5th place
Tesla sold 33,000 units of its Model X in 2017, according to data from UK-based market researcher JATO Dynamics. That puts the mid-sized luxury car with falcon wing doors in 5th position in the list of last year's best-selling fully electric cars.
Image: picture-alliance/dpa/B. Pedersen
Tiny and a bit whimsical, but ...
...successful nonetheless was the Zotye Zhidou (ZD) from China. Some 42,000 units of the model were shipped last year, with the tiny vehicles becoming increasingly popular in the Asian nation where affordablility can be a universal selling point.
Image: picture alliance/dpa/Hao Xiqing
Turning over a new leaf
Japanese carmaker Nissan introduced its Nissan Leaf back in 2010, banking on e-mobility at an early stage. The five-door hatchback proved the third most sold all-electric vehicle in 2017 (46,000 units). Leaf batteries can be charged to 80-percent capacity in 30 minutes.
Image: picture-alliance/dpa/S. Harms
Where acceleration matters
Tesla Model S cars are able to pick up speed very rapidly thanks to their all-electric powertrain technology. The vehicle features autopilot capabilities, making driving safer and less stressful. Some 47,000 people bought the Model S last year — only one model reached even more buyers.
Image: picture-alliance/dpa/J. Woitas
And the winner is ...
...China's BAIC EC. The compact electric city vehicle has fared well especially in its home market due to its trendy design and an improved range of 200 kilometers (125 miles) per charge. A record 78,000 units left the showrooms in 2017.
Image: picture alliance/dpa/Zhang Tao
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Binding contracts
Against this backdrop, it might not be so easy to "separate" in legal terms. VW has signed up to contracts that will not expire for decades. Its joint venture with the state company SAIC runs out in 2035, while its contract with FAW won't run out before 2041. The most recent joint venture that VW entered into - with JAC from central China to build e-cars - envisages a cooperation until 2042. Therefore, the new reform comes far too late for Germany's biggest carmakers.
It is newcomers that will profit from this opening, especially Tesla head Elon Musk who has been calling for the opening of an e-car factory in Shanghai without Chinese participation for months. In March, he complained about the "unfair environment” in China. Now there should be nothing in the way of his ambitious plans.
It remains to be seen how much more open the market will become to foreigners and whether they will be able to open and own factories without restrictions.
Last fall, the Communist Party announced that it was going to expand its influence over companies, including at management level with newly-created party cells. Chinese competitors will also be hard to beat since they will make the most of their home advantage to make it more difficult for foreign companies to go it alone.
New strategy needed
In the long term, foreign companies will have to come up with a new China strategy. German companies, which are already well established with joint ventures, in particular, will have to put their thinking caps on . They might well continue to expand production and build new factories that not only serve the Chinese market, where German companies are extremely popular, but also markets of the future, such as Vietnam and Indonesia.
China in this way will have more capital to expand its own e-car sector. Consumer data pools, state subventions, sophisticated software and better access to natural resources for use in batteries mean that China is already at a great advantage.
VW has announced that it will invest $15 billion into e-cars and digitalization by the end of 2022 alongside its Chinese partners.
Frank Sieren has lived in Beijing for over 20 years.
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Image: PodRide
Welcome to the traffic jam!
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Image: picture-alliance/dpa/S. Jansen
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Image: SRF
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Image: Reuters/A. Josefczyk
Goodbye to road rage?
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Image: picture-alliance/dpa/F. Cirou
The rise of the platform
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Image: picture-alliance/dpa/W.Gang
Discontinued model
The car's future is electric, that seems to be the consensus; the only question is, when? Despite investing billions into e-cars, there's a lack of options and sites for charging electric vehicles. Together with high costs, consumers are concerned. Alternatives to e-cars could fill the gap: fuel-electric hybrids, and other vehicles powered by hydrogen or synthetic fuels.
Image: picture-alliance/dpa/B. Marks
Yellow goes green
Postal workers are climate-friendly when they deliver letters by foot or bike, but for parcels they need vehicles. Deutsche Post (DHL) and Aachen Technical University have invented the CO2-free StreetScooters, powered by renewable energy. One of the challenges of the future is to make sure the electricity used in electric vehicles is also climate-friendly.
Image: DW/A. Setiawan
Jack of all trades
It looks a little like a Smart car, but it's actually an e-bike on four wheels. The Podride is 1.8 meters (6 feet) long and has a closed cab with a comfy seat. It travels file on snow and ice, it's heated, it can manage steep and uneven slopes, and there is even storage space. The driver steers by way of two levers at the seat and pedals to power the rear wheels with help from the electric motor.
Image: PodRide
Autonomous flying car project
From many clever minds comes a clever idea. A dozen companies are developing personal aircraft. This rocket-like Vahana flying car prototype from Airbus is designed to beam a passenger along at 9,150 meters (30,000 feet) altitude, reaching speeds of 480 kilometers (298 miles) per hour. Battery swaps would be like Formula 1 pit stops: quick landings, and on you go.
Image: picture-alliance/dpa
E-mobile in the air
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Image: Bauhaus-Luftfahrt e.V.
The steepest funicular in the world
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Image: Reuters/A.Wiegmann
The mobility revolution is in full swing
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