Auto industry: the effect of disappearing foreign restrictions - Mark Schaub

Mark Schaub

China is going to phase out restrictions on foreign ownership of the automotive industry over the next five year, president Xi Jinping announced earlier this year. Shanghai-based lawyer Mark Schaub summarizes the effects on the industry for the China Law Insight.

Mark Schaub:

The automotive sector is facing the twin disruptions of new energy and autonomous cars. 

It is eye-catching that one of the major initiatives to further open up China’s economy announced by President Xi Jinping at the Boao Forum on 10 April 2018 was large scale relaxation of foreign investment restrictions in the auto sector. 

Shortly after President Xi’s announcement the National Development and Reform Commission (NDRC) revealed that foreign ownership limits on automakers would be phased out over a 5-year transition period which would start on 17 April 2018. 

According to NDRC, foreign ownership restrictions on special-purpose vehicles and new energy vehicles (NEVs) will be removed in 2018. The liberalization will be followed by commercial vehicles in 2020 and passenger cars in 2022. The rule that currently prohibits foreign automakers from setting up more than two joint ventures in China will also be lifted in 2022. After the 5-year transition period, all restrictions on foreign investment in auto sector will be removed. 

These policies were swiftly followed by regulatory action and on 28 June 2018, NDRC and the Ministry of Commerce (MOFCOM) jointly issued the Special Administrative Measures for Admittance of Foreign Investment (Negative List) (2018) (“2018 Negative List”)[1] which is due to take effect from 28 July 2018.[2] 

The 2018 Negative List confirmed the pledge to fully remove foreign investment ownership limits on auto industry over a 5-year transition period. 

In addition to making it easier for international companies to sell more cars to China the government has also significantly lowered import tariffs for vehicles. Starting 1 July 2018 import tariffs on autos were reduced to 15% from 25% and auto parts will be subjected to 6% tariffs. 

The relaxation on foreign ownership restrictions should open up China’s auto industry and for this reason it may have a major impact on domestic and international OEMs alike.

More at the China Law Insight.

Mark Schaub is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more experts in managing your China risk at the China Speakers Bureau? Do check out this list.  

Foreign car makers cannot ignore China's self-driving cars - Mark Schaub

China is leading the market of self-driving cars, because its size and the aggressive way the government is paving the road, literally, says Shanghai-based lawyer Mark Schaub to the China Law Insight. But investing in China offers not only huge opportunities, the challenges are equally gargantuan.

Mark Schaub:

China will be too big for international autonomous car suppliers and service providers to ignore. Biggest automotive market, continued strong growth, right infrastructure, ability for government to implement, early adopter consumers, popularity of car sharing and sharing economy, new and innovative companies on the rise all point to China being pivotal to the development of autonomous cars. 

Also as China’s share of the world economy rises and it becomes the largest economy it may well be that for a company to be “global” in the autonomous car sector then you will also need to “win” in China. 

However, it will not be easy for these international companies though – China will be a major opportunity but also a major challenge. 

Time and time again international companies have underestimated the competitiveness of the Chinese market – it can be crowded – both international and home grown Chinese competitors bitterly fight it out. 

In addition as the Chinese economy is now so big even niches are worth fighting over. In addition to business competition international companies will also have to contend with regulatory controls in China and in particular restrictions on foreign investments in specific sectors. 

As the world’s largest auto market China’s number of cars and strong growth makes it a jurisdiction central to business strategy. It may be that if you are not present in China then you may not be able to succeed globally. 

International companies already with a presence in China are deepening their footprint in China to ready themselves for the new opportunities that autonomous vehicles will provide. For many this will involve setting up their first JVs (even if they have had WFOEs for decades in China) or by cooperating with domestic companies that have expertise or licenses in restricted sectors. There will be opportunities for WFOEs but these are unlikely to be the most important or lucrative businesses. Accordingly for many investors success will necessitate working with Chinese partners – whether they be fellow shareholders or cooperative partners.

More details at the China Law Insight.

Mark Schaub is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more experts on managing your China risk at the China Speakers Bureau? Do check out this list.

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New foreign investment law: long overdue - Mark Schaub/Xu Ping

Xu Ping

Mark Schaub

The draft foreign investment law (FIL) is replacing the regulations from 1979. China has changed, and so a major overhaul of the law is long overdue, write lawyers Mark Schaub and Xu Ping in China Law Insight. They give an overview of the shortcomings of the current law, and the new features of the FIL. And it might only be the beginning.

Mark Schaub and Xu Ping:

The Foreign Investment Law, if promulgated in its current draft form, will fundamentally change the current foreign investment regulatory landscape. As such its implementation will rely on the formulation of relevant implementation rules as well as other complementary guidance, such as the Negative List, the national security review guidance and information reporting rules. While the circulation of the Draft FIL is an important first step in the context of the landmark reform, there is still a very long way to go in the establishment of a new foreign investment regime and the full implementation of the Foreign Investment Law. According to the Legislative Work Plan for the State Council in 2014, the amendment of the Three FIE Laws falls within the ‘research projects’ of 2014. MOFCOM, as the department responsible for drafting the Foreign Investment Law, has started to circulate the Draft FIL for public comments at the very start of 2015. This demonstrates the determination of the Chinese government to carry out reform. Upon expiration of the period soliciting public comments (approximately 1 month), MOFCOM will revise the Draft FIL on the basis of comments gathered from the public, and submit the revised draft to the standing meeting of the State Council for deliberation and then circulate an updated draft for the Standing Committee of the National People’s Congress to review. With the objective of establishing a “new open economy system” and along with the negotiation of Sino-US and Sino-EU bilateral investment agreements, we believe we are now at the dawn of the era of the new Foreign Investment Law.

More details on proposed institutional changes in China Law Insight.

Mark Schaub and Xu Ping are lawyers at King&Wood and Mallesons. They are also speakers at the China Speakers Bureau. Do you need them at your meeting or conference? Do get in touch or fill in our speakers´ request form.

Managing risks in China is a major undertaking. Are you looking for experts on risk management at the China Speakers Bureau? Do check our list here.  

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