China Loosens Foreign Auto Rules, in Potential Peace Offering to Trump

Posted April 17, 2018 9:43 a.m. EDT

SHANGHAI — China offered a potential trade peace offering to the Trump administration on Tuesday, saying it would allow electric car companies to set up shop there this year without a local joint venture partner, and that it would set a timetable for the rest of the auto industry to build or run their own Chinese factories in the coming years.

The move, announced on Tuesday by China’s top economic planning agency, follows through on a long-promised effort by Beijing to further open its markets to foreign companies. It could be seen as a potential opening toward smoothing relations with the Trump administration, which has threatened to levy tariffs on $150 billion in Chinese-made goods.

In particular, U.S. trade officials have accused China of forcing electric carmakers to share their technology with Chinese partners as a way to help Beijing foster a local, globally competitive industry.

The overture came with a warning. As expected, China also took steps on Tuesday to impose duties on U.S. imports of sorghum, in a move that could potentially hurt farmers in states where President Donald Trump enjoys political support. China has threatened to retaliate against Trump’s tariffs dollar for dollar.

It isn’t clear how much the auto industry as a whole would immediately benefit from the measures announced on Tuesday. China has long required foreign auto companies to find local partners and build cars under 50-50 joint ventures. While the industry has long complained about the practice, many have learned to profit from it.

The immediate big winner from the decision would be Tesla, which has already negotiated for a site in the Shanghai area to build cars but has been reluctant to accept a joint venture partner. Going into the Chinese market alone would mean that Tesla could keep better control of its technology and retain all the profits.

Still, that means Tesla would have to foot the entire investment cost as well, instead of sharing it with a local partner. Other automakers have learned to work with their Chinese partners to smooth over potential political and labor issues and invest in new facilities together.

“They don’t need to negotiate with any party, but the bad news is they have to invest 100 percent of their own money,” said Yale Zhang, the managing director of Automotive Foresight, a Shanghai consulting firm, referring to Tesla.

In coming years, the rule requiring a Chinese partner will be lifted for the rest of the auto industry, according to the planning agency, the National Development and Reform Commission. It said in a statement that it would end the rule this year for the production of new energy cars in China, in 2020 for the production of trucks and other commercial vehicles and in 2022 for all cars made in China.

The sorghum duties are part of an anti-dumping case that had first been disclosed two months ago as tensions rose with the Trump administration over U.S. plans for tariffs on imported steel and other goods. China imported $957 million worth of U.S. sorghum last year, using it for livestock feed and for making a popular liquor, baijiu.