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China's growing market becomes more complex for global automakers
Yang Jian | 2017/9/15

SHANGHAI -- China's new-vehicle market, already the worlds largest, continues to expand. Light-vehicle deliveries rose 4.3 percent in the first eight months of the year despite an increase in the sales tax on small vehicles in January. 

But for global automakers, the country is becoming an increasingly complex marketplace as a California-style carbon trading program forces them to form joint ventures with domestic companies that they would otherwise avoid.

When it opened its auto industry to foreign investment in the early 1980s, Beijing made partnerships with domestic companies a prerequisite for overseas automakers seeking to produce and sell locally. 

Over the years, nearly all global automakers have obeyed the rule and formed manufacturing joint ventures with local peers. To amass even bigger scale and volume, most major global brands have partnered with two local automakers. 

The relationship between global automakers and their Chinese joint-venture partners is certainly cooperative, but it can also be competitive. 

Although domestic automakers only produce vehicles under their proprietary brands, they are eager to upgrade the design and engineering prowess of their products to better compete with global brands.

Seeing local partners as potential rivals, foreign automakers have protected proprietary technology by developing and engineering vehicles back home and then assembling them at joint ventures in China.

These already complex relationships are now becoming more complicated with the establishment of separate joint ventures with Chinese companies to produce electric vehicles. 

Volkswagen Group broke ground on an EV partnership with Jianghuai Automobile Co. in June, and Ford Motor Co. signed a memorandum of understanding on joint EV production with Zotye Auto Co. in August. 

VW already operates two passenger vehicle joint ventures in China, with SAIC Motor Corp. and China FAW Group Corp. 

Ford has a passenger vehicle partnership with Changan Automobile Co. and a truck joint venture with Jiangling Motors Corp. 

The new joint ventures of VW and Ford will focus on producing EVs, which qualify for more credits than plug-in hybrids under the carbon trade program.

But why do VW and Ford need more joint ventures in China? Cant they just assemble EVs under current partnerships?

The carbon trade program will require automakers that assemble more than 2,000 vehicles in China or import the same number of vehicles into the country each year to significantly raise EV output over the next three years, a mission impossible for VW and Ford because neither has started local EV output of any kind.

VW and Ford believe the most efficient way to meet the regulatory requirements on EV production is to team up with major Chinese EV makers such as Jianghuai and Zotye.

The latest partnerships serve another purpose.

They are expected to produce small, low-priced EVs under new marques to protect the image of the VW and Ford brands.

The Chinese government will launch the carbon trade program soon, and it is also studying a ban down the road on traditional fossil fuel powered vehicles, a senior government official said last week. 

By implementing the carbon program, the government expects annual EV sales in China to quadruple to 2 million by 2020. 

Look for more global automakers to form joint ventures with local companies to accelerate EV production. 

And the newest ventures will likely differentiate their EVs under more new brands, which must coexist and compete alongside the proprietary brands of global and Chinese automakers.

The extra layer of complexity and competition will make China an even trickier marketplace to navigate.

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