German automaker BMW Group plans to secure control of its joint venture in China through a deal that will provide the company more power over its business in the world’s largest car market.
BMW stated that it will take majority control of its main Chinese joint venture for €3.6 billion ($4.1 billion), raising its stake in its venture with Brilliance China Automotive Holding Ltd. from 50 percent to 75 percent.
BMW is now embarking on a new era, according to Chief Executive Harald Kruger, thanking Chinese Premier Li Kequiang who he said had personally supported the plan.
BMW’s deal with Brilliance Automotive, which is subject to regulatory and shareholder approval, is expected to conclude in 2022 when the 50:50 foreign ownership policy for all car ventures have been lifted. The term of the joint venture will also be extended to 2040 from 2028.
China Easing Policies for Foreign Companies
This is the first such move by a global automaker, following China’s plans to loosen rules for foreign firms operating in its huge market.
China has been eager for global carmakers to invest more in the country, including relaxing its policies that restrict foreign ownership of electric vehicles businesses at 50 percent this year.
Foreign companies that manufacture cars in China are currently not allowed to hold more than a 50 percent stake of any Chinese venture and they must share profits with their local partner.
This rule has been imposed since 1994 and has left several foreign firms struggling. It has also capped big global brands from gaining full access to the country’s auto market.
With trade tensions with the US escalating, China’s government is also planning on further widening access to its markets, including lowering taxes on imported vehicles, cancer medicines, and consumer products.
BMW is one of the largest exporters of vehicles from the US to China, putting the company in the crosshairs of a trade war which has seen the two countries increase tariffs on a massive amount of goods, including automobiles.
Independent auto industry analyst James Chao stated that given the trade dispute between two of the world’s largest economies, there is a powerful incentive for car companies to produce vehicles in the market where they sell them.
Complete control of the joint venture could help BMW bring making of models such as the X4, X5, and X6 sport utility vehicles, which are currently manufactured in the US, to China, according to Chao.
BMW said the goal of the arrangement was to boost production capacity at its current sites in Shenyang and expand the localization of other models like the so-called new energy vehicles.
The leaders of China have marked other milestone deals like German chemical company BASF SE receiving a green light in July to set up the country’s first wholly foreign-owned chemicals plant.
Changes in the policy have already helped US EV maker Tesla Inc. gain the country’s consent for a wholly owned Chinese manufacturing and sales firm in Shanghai, marking the first time a foreign auto group will be able to set a full presence in China without a partner.
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