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Why VW may become 2nd foreign automaker to gain control of China JV
Yang Jian | 2019/4/12

SHANGHAI -- Beijing last year pledged to phase out ownership restrictions on foreign automakers that produce light vehicles through joint ventures in China. Now, Volkswagen Group is likely to become the second global auto manufacturer after BMW Group to gain control of a joint venture formed with a local peer.

The partnership in which VW is seeking to raise its share to more than 50 percent is the one established with Jianghuai Automobile Co. 

VW Chairman Herbert Diess told the press in Germany on March 12 that the company was evaluating the possibility of raising stakes in China-based joint ventures. He quickly draw a rebuke from SAIC Motor Corp., VW¡¯s first Chinese partner. 

VW should not comment on important matters regarding shares in its joint ventures in China without consulting local partners in advance, SAIC said in a statement.

Looking back, when Diess made the remarks, the company he had in mind was more likely JAC VW than SAIC VW.

JAC this week acknowledged it is in talks with VW on expanding cooperation. Though formal plans have not been made, ¡°the two sides have been in talks all the time on further deepening cooperation,¡± JAC said in a statement.

The statement essentially confirmed what Reuters reported this week. VW is exploring purchasing a big stake in JAC and has tapped Goldman Sachs as an adviser on the deal, Reuters reported.

VW is one of the first foreign automakers to start production in China by teaming up with a local company, as required by Chinese rules.

In 1985, SAIC VW was set up as a 50-50 partnership. It now produces cars for the Volkswagen and Skoda brands.

FAW VW, incorporated in 1991 as a 60-40 joint venture between China FAW Group Corp. and VW, builds vehicles for the Volkswagen and Audi brands.

The two joint ventures have each generated sales of more than 2 million vehicles annually for VW in China over the past few years. They are also the main profit generators for SAIC and FAW.

Compared with SAIC VW and FAW VW, JAC VW -- a 50-50 electric vehicle partnership formed in 2017 between JAC and VW -- hasn¡¯t launched sales.

It is a much simpler task to adjust the ownership structure of JAC, a young company with small operations, than that of well-established large car companies such as SAIC VW or FAW VW.

What¡¯s more, JAC has been hit hard by the market downturn that started in the middle of last year.

In 2018, JAC sold 462,447 trucks, vans, multipurpose vehicles, crossovers and sedans in 2018, a drop of 9.5 percent from a year earlier. With the sales decline, JAC suffered a loss of 770 million yuan ($115 million) last year, as opposed to a net profit of 432 million yuan in 2016.

That will make it easier for VW to persuade JAC to give up a greater stake in their joint venture.

The Chinese government, under pressure to accelerate market reforms, agreed in June 2018 to phase out by 2022 the 50-percent cap on foreign automakers¡¯ interest in joint ventures formed with local companies.

Late last year, Brilliance China Automotive agreed to allow BMW to increase its interest in their partnership to 75 percent from 50 percent in 2022.

Now, VW is on track to follow BMW¡¯s steps to raise its stake in a local joint venture. It won¡¯t be last foreign automaker to do so in China. 

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