Chinese Government May Allow Captives to Grow Deeper Partnerships

  • Emma Sandler
  • July 5, 2017
  • 0

China may allow foreign automakers to acquire majority control over their Chinese joint ventures (JVs) within a couple of years, according to a government statement. Which leaves the question — which auto captive in a joint venture will lead the booming Chinese auto finance market?

For the past 30 years, Chinese regulations require that foreign automakers create JVs in order to manufacture foreign-branded cars within the country, often meaning that those automakers own less than 50% share of the partnership. But China’s central government said that it is looking to ease rules and allow global automakers to take more than a 50% share of their partnerships, but did not specify when this will change.

There have been numerous high profile JVs in the past few months, including Volkswagen and JAC Motors (adding to the German auto maker’s existing partnerships with Shanghai Automotive Industry Corp. and China FAW Group Corp.), BMW AG and China FAW Group Corp., and recently Daimler AG and BAIC Motors, where the joint venture will include an investment of $735 million in Mercedes-Benz battery electric vehicle production by 2020.

“By 2025, the Chinese market will have a substantial share in global sales of Mercedes-Benz electric vehicles,” Hubertus Troska management board member said in a published report.

Since both Mercedes-Benz and BAIC Motors both own a 50-50 share of the venture, it’s unclear which company’s captives get the origination or how they split volume. Some manufacturing JVs extend into financing like SAIC Motor Corp. which partners with General Motors Financial Co.

Meanwhile, BMW owns only 40% of its manufacturing JV with FAW and has been in negotiations to raise it to the maximum 50% allowed. But the two sides so far have failed to agree on a price, according to a published report.

Volkswagen’s manufacturing JV with JAC, the role of VW Credit is going to be addressed after production, a Volkswagen Group China spokesperson told Mobility Finance.

Since 2009, China’s new vehicles sales have exceeded the United States, meaning China has become part of the world’s largest new car market, according to a report from Deloitte Consulting. But, compared to developed markets that boast rates above 50%, China’s auto finance penetration rate is low. For instance, 84% of new cars in the U.S. were purchased with credit compared with 20% in China, according to credit agency Experian.

But in recent years, the Central Bank of China Banking Regulatory Commission (CBRC) has backed the expansion of auto finance companies’ financing channels with various degrees of regulatory supports, according to Deloitte. This includes no longer approving issuances of securitization products on a case-by-case basis, giving way to allow auto finance companies such as Shanghai GM, Volkswagen, Toyota, Dongfeng Nissan, BMW, and GAC Group to issue more than $23 billion in personal auto loans in 2014.

 

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