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

SHANGHAI — Beijing and Washington have threatened each other with tariffs for weeks, raising the prospect of a trade war. But on Tuesday, China took a step to lower tensions, offering to make it easier for foreign automakers and aerospace manufacturers to own factories in the country.

Chinese authorities said that in the next five years they would ease rules that have long required carmakers like General Motors, Toyota and Volkswagen to link up with a local partner before building a factory in China. For manufacturers of electric cars, as well as for companies that make jetliners, helicopters and drones, Beijing plans to move even faster, eliminating foreign ownership limits this year.

Opening up the electric-car sector is a potential boon for Tesla Motors, which has already identified a site in Shanghai for a factory but has not wanted a partner for fear of losing control of its technology. Big automakers, especially Volkswagen, have also been preparing to set up large electric-vehicle subsidiaries in China as Beijing has made clear that it will use a mix of subsidies and penalties to shift the market sharply toward more electric cars.

Loosening limits for electric carmakers and aerospace manufacturers is notable because those are two areas where Beijing and Washington have been increasingly at loggerheads. The sectors are among 10 industries in Beijing’s Made in China 2025 plan, which calls for extensive government support to expand China’s production and self-sufficiency in everything from microchips to robotics.

President Donald Trump’s trade officials last month accused the Chinese government of using bureaucratic licensing and approval procedures to compel U.S. companies to give up valuable trade secrets. Chinese officials deny those claims.

Beijing’s offer on Tuesday to make it easier for foreign aircraft manufacturers to set up wholly owned factories in China might even increase worries in the national security community in Washington about further transfers of the technology needed to retain America’s military edge.

Easing electric car limits may not be enough to bring the Trump administration to the negotiating table, much less reach a deal. The White House has expressed more interest in creating jobs in the United States than in making it easier for U.S. companies to build factories overseas.

It also isn’t clear whether the measures — part of a series of moves to relax trade rules for carmakers — will win over the auto industry.

China has previously said it would also lower tariffs on imported cars, but has not specified when or by how much. Much of the global auto parts industry has already moved to China to avoid those tariffs.

GM, Volkswagen and others have learned to profit handsomely with their local partners, which have developed fairly few homegrown models attractive enough to win over Chinese customers. And foreign automakers may want local partners anyway to smooth potential political problems and to win access to Chinese subsidies.

The latest 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.

The planning agency, the National Development and Reform Commission, said in a statement that rules requiring a Chinese partner would be lifted this year for the electric-car industry, in 2020 for the production of trucks and other commercial vehicles, and in 2022 for all cars made in China.

China also said on Tuesday that it would eliminate foreign ownership restrictions this year on its shipbuilding industry. But that industry is in disarray, saddled with overcapacity and heavy debts after more than a decade of large loans from the state-controlled banking industry.

The move on Tuesday by Beijing nevertheless came with a warning. As expected, China also took steps to impose steep duties on imports of sorghum from the United States, an action that could hurt farmers in states where Trump enjoys political support. The White House has threatened to levy tariffs on $150 billion in Chinese-made goods, and Beijing has promised to retaliate, dollar for dollar.

The immediate big winner from the decision on car manufacturing would be Tesla. Going into the Chinese market without a joint venture partner would mean that Tesla could keep better control of its technology and retain all the profits. That also means Tesla would have to foot the entire investment cost.

“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.

General Motors quickly issued a statement on Tuesday indicating that it was not eager to buy out its partners, notably the powerful and state-controlled Shanghai Automotive Industry Corp. “GM’s growth in China is a result of working with our trusted joint venture partners,” the statement said. “We will continue to work with our partners to provide high-quality products and services to consumers.”

Volkswagen also said in a statement that it was committed to continuing its joint ventures, but that it would explore whether new opportunities were possible. The German company has been making ambitious plans to build electric cars in China, and only has a loose and deliberately temporary joint venture with Anhui Jianghuai Automobile Group to do so.

Cui Dongshu, the secretary-general of the China Passenger Car Association, which represents the country’s domestic industry, said that Chinese automakers had developed a lot of expertise recently in electric cars. “For the short term, they still face huge pressures,” he said on Tuesday. “For the long term, automakers will adapt to the new environment and make our auto industry more competitive.” China has been the only carmaking nation of any significance that requires joint ventures with local companies. Even countries like Brazil and India, which have some of the world’s highest barriers to imports, do not have similar joint venture requirements.

Beijing insisted on the special rule when it joined the World Trade Organization in 2001. Chinese trade negotiators wanted to make sure that the country’s automakers, which were tiny by international standards then, would not be crushed by foreign competition.

A Chinese Commerce Ministry official suggested at a conference in 2013 that the joint venture rule might be lifted, noting that China wanted to see its automakers start exporting to the West. The Chinese industry responded furiously, contending that they were not yet ready to compete on the world stage and were more worried about retaining their alliances at home with foreign automakers. The idea was dropped.

But the top executive at a Chinese automaker with no foreign partners argued at the time that the rule should be scrapped. Li Shufu, the founder of Geely, a large carmaker in Zhejiang province in eastern China, said in an email interview in early 2014 that the rule should be abandoned. “The cap has hindered fair, open and transparent competition, which undermines the interests of consumers and the overall competitiveness of the Chinese auto industry,” he wrote.

In any case, Chinese automakers may have less to fear now from international competition in electric cars, a rapidly growing market for which they are already among the world’s dominant producers.