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Since 1994, China has mandated foreign automakers to create joint-ventures with domestic companies to regulate ownership limits. The foreign companies have been limited to no more than 50 percent ownership. It's led to numerous tie-ups between established Western automakers and budding Chinese companies. Such regulations will soon enter a sunset period, and it's big news for foreign automakers.
According to a Tuesday report from CNBC, China will scrap ownership limits on foreign automakers by 2022. The revised regulations pave the way for foreign automakers to wholly own production facilities and potentially buy out joint-venture partners.
The rules will begin changing this year with the cap lifted on any foreign-invested shares in electric and hybrid cars. By 2020, China will remove the cap on commercial vehicles before finally eliminating the limit for passenger vehicles by 2022.
The news also follows a vow by China's President Xi Jinping to reduce tariffs on imported cars to China and enforce the legal intellectual property rights of foreign firms. Currently, foreign automakers face a 25-percent tariff when bringing a vehicle into the country; the policy has buoyed the need for joint-ventures to build cars in China. The country is also notorious for allowing domestic companies to appropriate the designs of foreign companies.
The end of ownership limits is particularly good news for Tesla. Tesla CEO Elon Musk has been reluctant to establish a joint venture with a Chinese company to produce cars in the country. With the changes, Tesla could outright own its proposed facility in Shanghai. Musk has said the 25-percent tariff is a burden.
Yet, automakers may not see the incentive to cut ties with local partners, Reuters reported. The operation has become so thoroughly ingrained in business practice that many automakers, including General Motors and BMW, said they wouldn't be as successful without the joint ventures.