A carrot for Trump, a stick for Xi?
In the heat of the trade war between China and the US, President Xi has made a concession to President Trump, that analysts, such as the people at the Financial Times, have subtitled a “sign (that) China is willing to bend to American demands”.
Joint Ventures
Until now, if a foreign company wanted to establish itself on Chinese territory, it had to look for a local partner and could not own more than 50% of the newly created Chinese entity. It’s exactly this ownership restriction that China is now willing to review. Manufacturers of electric vehicles, aircrafts and ships will soon be able to establish in China without having to respect the 50/50 rule.
The new regulations will be implemented, according to Beijing, over a period of 5 years, starting at the end of this year.
The Stick
In parallel with the ownership concession, China also announced a 178% import duty on sorghum crops, which are used for food, fodder and the production of alcohol. China imported last year USD 1bn worth of crops. The import taxation will hit especially farmers in Kansas, Texas, Oklahoma (Republican States) and Colorado (Democratic State).
China’s actions need some interpretation. Easing on the ownership regulations of industries that are crucial for China (automotive, aviation and shipping) is in reality a symbolic action aiming to draw the US President to the negotiation table. Announcing high import taxes on a key American industry, means that China’s ready, able and willing to play it rough.
What was supposed to be a war easy to win, is starting to become a complex nightmare for the American administration, that didn’t seem to be prepared for China’s creativity. The US business community is also becoming nervous and fears for the 2 largest economies of the world to be damaged right in the middle of an economic revival.
Impact on the OEMs?
Manufacturers such as Tesla, that have already announced their intentions to start up production in China, welcome the new rules. The OEMs that are already present in China, such as Ford and GM, have stated that they are happy with the situation as is. GM even said that its growth in China was due to its Chinese joint venture partners. Ford representatives have said, in older interviews, that they have learned very quickly that being successful in China requires local partnerships.
Conclusion
China has been strategically diversifying its economy, is not dealing with the consequences of a major financial crisis and has been strengthening for years now its position as an exporter of goods and services. The US are recovering from a crisis, are dealing with political tension and, by excluding themselves from international free trade deals, rely very much on bilateral deals.
Fleet journalists are no political journalist, but we do understand that a car drives better when its weight is evenly distributed.
