The joint venture compulsion was once seen as an annoying evil by Western carmakers when entering the Chinese market. In the meantime, a dense network of partners has formed because of it. Christiane Kuehl has sorted through the ramifications and writes down who is cooperating and producing with whom at which locations – and who is still planning a joint venture.
Which productions are booming in the Chinese billion-dollar film industry and what are American producers doing to circumvent market restrictions and Beijing’s censorship? Joern Petring and Gregor Koppenburg analyze the giant movie business and take a look at the preferences of moviegoers.
The two Beijing correspondents also investigate a social phenomenon that has long been a concern of the state leadership in Beijing: the aging population. The former one-child policy has left deep scars on the Chinese, and the pursuit of prosperity is accelerating the negative development: The Chinese birthrate is too low.
We would also like to recommend a journalistic tidbit for you to read today. Our colleagues at the Wall Street Journal uncovered the real reasons behind the sudden cancellation of Ant Financial’s IPO last fall. Their research shows: According to several Beijing party sources, the wrong people would have benefited from the mega IPO – namely, political opponents of Xi Jinping. And that has finally prompted the already suspicious authorities to act.
From 2022, one of the cornerstones of economic policy from the 1990s will fall in China: the so-called joint venture compulsion. Until now, foreigners have been allowed to hold a maximum of 50 percent of the shares – and to operate a maximum of two joint ventures. Both will be abolished in 2022 – it already applies to EVs and plug-in hybrids since 2018.
But it is unlikely that the web of joint ventures that foreign automakers’ investments in China have formed over the years will unravel in the short term. Buying out the Chinese partners would cost the international companies billions – and would require the consent of the respective partners. These are mostly large state-owned corporations. “Accordingly, in addition to negotiating with the Chinese partners, the foreign partners will also need to negotiate with the relevant Chinese government authorities,” according to Mark Schaub, managing partner at the law firm King, Wood & Mallesons. The Chinese are likely to have little interest in exiting the successful joint ventures.
The aim of the joint venture rule, which has been in force since 1994, was to give local car companies direct access to the technology and expertise of foreign car companies. But until now, the state-owned companies earned their money with international brands of the partners. But in building their own brands – one of the goals of the joint venture policy – most have had only moderate success so far.
For foreigners – Volkswagen, BMW, Daimler, Audi, General Motors, PSA, Fiat-Chrysler, Toyota, Honda and others – China has also emerged as one of their biggest sales markets in the existing rulebook. GM and VW sell more cars in China than in their respective home markets. VW, for example, had 3.85 million cars in 2020, despite a Covid-related drop. The market share of the various VW Group brands in China was 19.3 percent in 2020.
As early as 1985, Wolfsburg founded its first joint venture with China’s largest carmaker, Shanghai Automotive (SAIC), in which both companies hold a 50 percent stake. The Santana, initially produced there, became a long-running success, and since then, many other models, including those from other Group brands, have been added. In 1991, the second VW joint venture was founded with First Automobile Works (FAW) in Changchun. VW still holds only 40 percent of the shares. To this day, cars of the Audi brand also come off the production line at FAW-VW.
But no one has an exclusive partner in China. VW partner SAIC also operates a large joint venture with GM – plus a three-way joint venture with GM and Wuling that is very successful with simple mass-segment models. General Motors has been VW’s biggest competitor for the market leader’s crown for years.
Since 2005, Daimler has been operating a joint venture in Beijing with Beijing Automotive (BAIC) called Beijing Benz Automotive Co., Ltd. (BBAC), in which the Stuttgart-based company holds a 49 percent stake. Daimler also set up an EV joint venture with BYD in 2011 called Shenzhen BYD Daimler New Technology (BDNT), where an e-model called Denza is rolling off the production line. BMW had entered local manufacturing in Shenyang, northeast China, shortly before Daimler with its joint venture BMW Brilliance Automotive Ltd, founded in 2003. Brilliance and BMW each hold half the shares. Unlike the other German firms, BMW announced back in 2018 that it was interested in increasing those stakes to 75 percent. Since then, Brilliance has been in turmoil as its largest shareholder is said to be on the verge of bankruptcy. According to a report by the Reuters news agency, VW partner FAW is considering acquiring Brilliance.
With the takeover of Brilliance, FAW would inherit the joint venture and thus increase the number of its joint venture partners to three. FAW operates two other joint ventures with Toyota in Tianjin and Chengdu in addition to those with VW. Toyota, meanwhile, has another joint venture with Guangzhou Auto (GAC) in Guangzhou. Meanwhile, GAC still runs two joint ventures with Fiat-Chrysler in Changsha and with Honda in Guangzhou. Honda, in turn, also cooperates with the Dongfeng Group in Wuhan, which, in addition to Honda, is also affiliated with PSA and Nissan. Ford and Mazda each have a joint venture with Changan Auto in Chongqing. Changan operates another in Shenzhen with PSA. BAIC also cooperates with Hyundai in addition to Daimler – in a company that, among other things, produces virtually all the cabs in the capital.
And now, electromobility has added further partnerships – even though this would no longer have been necessary since 2018. Only Tesla built its Shanghai car factory on its own and has been selling its EVs rolling off the production line for a year. VW had already established an electric joint venture with Jianghuai Automotive (JAC) in Hefei in the central Chinese province of Anhui in 2017. EVs of the Sol brand have been coming off the production line there since September 2019. At the end of 2020, VW increased its stake from 50 to 75 percent with the help of a capital increase and renamed the company from JAC Volkswagen to Volkswagen (Anhui) Automotive.
In the summer of 2018, BMW and China’s Great Wall Motor signed a contract for a 50-50 joint venture called Spotlight Automotive to produce the electric Mini in the coastal city of Zhangjiagang. Construction of a factory began in December 2019, with car production expected to start in 2022.
Then, at the beginning of 2020, Daimler founded a joint venture with Geely in the port city of Ningbo to produce e-Smart models. The joint venture is expected to produce cars starting in 2022; until then, the Smart will still be rolling off the production lines at two plants in Europe. Audi announced its own joint venture with FAW in October 2020, with which the Ingolstadt-based company plans to produce EVs in Changchun from 2024. Accordingly, Audi holds a 60 percent stake in the company.
Also, in 2020, a joint venture between Toyota and BYD was launched. The partners want to develop EVs and batteries. In conclusion, the issue of joint ventures is far from closed – only it will soon be voluntary.
Given the significant challenges, not least those posed by the coronavirus pandemic, it is more than necessary to rethink our trade policy strategy. Because it is quite clear that the old idea of trade policy as the grease of economic development is long outdated. The same goes for the David Ricardo approach, that all you have to do is tear down the trade barriers and then the comparative advantages will bring growth and prosperity. Today, the issues are climate change, workers’ rights, wealth distribution and the UN’s sustainable development targets. The EU’s trade policy is a powerful means of making European interests effective.
That is why we need strategic guidelines for the next ten years. The three central guidelines of the EU Commission are certainly agreeable: a) Trade policy must contribute to the reconstruction after the Covid crisis and to the transformation towards the “Green Deal”; b) Trade policy must make globalization fairer and more sustainable; and c) Trade policy must contribute to making the European Union capable of acting in accordance with its values.
The toolbox of European trade policy needs to be reviewed to implement the guidelines. It is clear that some instruments need to be modernized and others created. For example, a new impetus in the area of digitalization or sustainability will certainly be necessary in the area of WTO. We also need a new border adjustment mechanism, for example, to promote climate-neutral development. A fair shaping of globalization will not be possible without a binding due diligence obligation in supply chains. We will certainly have intensive and probably also controversial discussions with the EU Commission about the specific instruments.
Our relationship with our trading partners in the multipolar world is, of course, also shaped based on the definition of our own interests and strategy. Of course, China, the EU’s largest trading partner for some days now, comes into perspective here. China has undoubtedly developed great economic dynamism and is a stabilizing economic factor right now. But there is also no doubt that China, with its state capitalist system, has a different economic and geopolitical approach to the globalized world than we Europeans would regard as appropriate. In this respect, the three guidelines naturally give rise to different strands of action vis-à-vis China, which then lead to an overall strategy.
There are opportunities to cooperate with China in the area of reconstruction and transformation. Here, the focus is on the WTO, where new rules for digital and climate-friendly trade are needed. But in our bilateral relations, it would also be helpful to reach an understanding of rules to protect against forced technology transfer, the conduct of state-owned enterprises, the transparency of subsidies, etc. Joint projects on climate protection are also conceivable, following the commitment to climate neutrality.
In the area of fair and sustainable globalization, however, there are clear differences. For example, the ratification and corresponding implementation and monitoring of the eight core labor standards of the International Labour Organization is part of the minimum requirements for appropriate action. This must be bindingly agreed upon. Businesses must also help to implement them by means of a European supply chain law. Similarly, I cannot imagine market access for products that are clearly the result of production processes involving forced labor.
We will certainly look at the issue of fair and unfair subsidies from Chinese companies to the European market in the area of the European Union’s ability to act and bring forward legislation. In this context, I hope that we will finally be able to adopt the international procurement instrument in the next few months. The FDI screening mechanism to monitor the acquisition of certain companies, infrastructure or technology that could become a risk to security or public order will be further developed. Strengthening the ability to enforce agreements is also part of this.
Trade policy is a powerful tool of governance. Still, it should be part of a comprehensive approach, including active diplomacy on, for example, what is happening in Hong Kong, or the use of the new mechanism on sanctions for serious human rights violations.
Bernd Lange has been Chairman of the Trade Committee in the European Parliament since July 2014. The SPD politician from Lower Saxony was an MEP from 1994 to 2004 and headed the “Economy, Environment and Europe” department at the DGB district of Lower Saxony-Bremen-Saxony/Anhalt between 2005 and 2009. He returned to the EU Parliament in 2009. Since 2019, he has also been Chair of the Working Group on Fair Trade.
Out of pure curiosity, after finishing high school, Doris Fischer enrolled in Sinology and Business Administration at the University of Hamburg. She didn’t know any Chinese people by name and wasn’t sure if she would even like the program. “After two weeks, I was captivated by it,” she says. The 55-year-old has now been studying China’s economic and industrial policy for around 30 years, and since 2012 as a Professor of China Economics and Business at the Institute of Sinology at the University of Wuerzburg.
Her current research focuses on China’s industrial policy for the energy transition under Xi Jinping and on the Chinese social credit system. There is currently a great deal of public interest in the latter: “The topic has been hyped in the media.” A three-year research project is now to clarify in principle how the social credit system works, the economic logic behind it, and what effects the system could ultimately have on German companies.
It quickly becomes clear that Doris Fischer is passionate about China: She talks fast and is full of energy. She perceives the lack of China expertise in Germany as problematic. In recent years, it has become increasingly difficult to form an independent opinion about the country. “A huge propaganda battle has been going on since the US-Chinese trade war,” she says. Local reporting is often dominated by US media, she says.
Doris Fischer also wonders about the “German Angst” towards the Chinese leadership and what she calls “China technophobia”. “The West likes to point the finger at China’s regime, forgetting that our system also has its flaws,” she says. This is a convenient but ultimately ineffective attitude, she adds. “We can’t just democratize China.” Rather, she says, we need to maintain dialogue while setting limits so that the country abides by international rules. “But to do that, you first need to understand the system.”
The debate on the social credit system is an example. Misuse of the system is, of course, possible and should be criticized. But before that, it is necessary to examine how the system works exactly, says Doris Fischer. Only those informed and those who discuss with the Chinese leadership on an equal footing will be taken seriously.
China has a completely different tradition of mutual trust and social control, which seems unthinkable from a European perspective. While in the West, the rule of law and laws ensure that society adheres to the rules, in China, trust traditionally arises through networks and relationships, says Doris Fischer. It is made public whether someone is trustworthy within the framework of the social credit system: for example, with blacklists for lawbreakers and awards for those who behave in a particularly exemplary manner.
This is not entirely new either. Doris Fischer provides an anecdote from her time in China. She first visited the country in the 1980s, spending two years studying in Wuhan. In 1994, she was a doctoral student at Beijing People’s University. “In the entrance hall of my dormitory, there were lists of students who were diligent and who were late more often.” The social credit system pursues a similar goal, simply with digital technology.
Since her first stay in China, she visits the country for several weeks every year. The human and cultural diversity still inspires her. “China offers me an endless source of scientific questions.” The country is incredibly dynamic, she says, and always presents her with new challenges. “It keeps me mentally fit.” Adrian Meyer
The joint venture compulsion was once seen as an annoying evil by Western carmakers when entering the Chinese market. In the meantime, a dense network of partners has formed because of it. Christiane Kuehl has sorted through the ramifications and writes down who is cooperating and producing with whom at which locations – and who is still planning a joint venture.
Which productions are booming in the Chinese billion-dollar film industry and what are American producers doing to circumvent market restrictions and Beijing’s censorship? Joern Petring and Gregor Koppenburg analyze the giant movie business and take a look at the preferences of moviegoers.
The two Beijing correspondents also investigate a social phenomenon that has long been a concern of the state leadership in Beijing: the aging population. The former one-child policy has left deep scars on the Chinese, and the pursuit of prosperity is accelerating the negative development: The Chinese birthrate is too low.
We would also like to recommend a journalistic tidbit for you to read today. Our colleagues at the Wall Street Journal uncovered the real reasons behind the sudden cancellation of Ant Financial’s IPO last fall. Their research shows: According to several Beijing party sources, the wrong people would have benefited from the mega IPO – namely, political opponents of Xi Jinping. And that has finally prompted the already suspicious authorities to act.
From 2022, one of the cornerstones of economic policy from the 1990s will fall in China: the so-called joint venture compulsion. Until now, foreigners have been allowed to hold a maximum of 50 percent of the shares – and to operate a maximum of two joint ventures. Both will be abolished in 2022 – it already applies to EVs and plug-in hybrids since 2018.
But it is unlikely that the web of joint ventures that foreign automakers’ investments in China have formed over the years will unravel in the short term. Buying out the Chinese partners would cost the international companies billions – and would require the consent of the respective partners. These are mostly large state-owned corporations. “Accordingly, in addition to negotiating with the Chinese partners, the foreign partners will also need to negotiate with the relevant Chinese government authorities,” according to Mark Schaub, managing partner at the law firm King, Wood & Mallesons. The Chinese are likely to have little interest in exiting the successful joint ventures.
The aim of the joint venture rule, which has been in force since 1994, was to give local car companies direct access to the technology and expertise of foreign car companies. But until now, the state-owned companies earned their money with international brands of the partners. But in building their own brands – one of the goals of the joint venture policy – most have had only moderate success so far.
For foreigners – Volkswagen, BMW, Daimler, Audi, General Motors, PSA, Fiat-Chrysler, Toyota, Honda and others – China has also emerged as one of their biggest sales markets in the existing rulebook. GM and VW sell more cars in China than in their respective home markets. VW, for example, had 3.85 million cars in 2020, despite a Covid-related drop. The market share of the various VW Group brands in China was 19.3 percent in 2020.
As early as 1985, Wolfsburg founded its first joint venture with China’s largest carmaker, Shanghai Automotive (SAIC), in which both companies hold a 50 percent stake. The Santana, initially produced there, became a long-running success, and since then, many other models, including those from other Group brands, have been added. In 1991, the second VW joint venture was founded with First Automobile Works (FAW) in Changchun. VW still holds only 40 percent of the shares. To this day, cars of the Audi brand also come off the production line at FAW-VW.
But no one has an exclusive partner in China. VW partner SAIC also operates a large joint venture with GM – plus a three-way joint venture with GM and Wuling that is very successful with simple mass-segment models. General Motors has been VW’s biggest competitor for the market leader’s crown for years.
Since 2005, Daimler has been operating a joint venture in Beijing with Beijing Automotive (BAIC) called Beijing Benz Automotive Co., Ltd. (BBAC), in which the Stuttgart-based company holds a 49 percent stake. Daimler also set up an EV joint venture with BYD in 2011 called Shenzhen BYD Daimler New Technology (BDNT), where an e-model called Denza is rolling off the production line. BMW had entered local manufacturing in Shenyang, northeast China, shortly before Daimler with its joint venture BMW Brilliance Automotive Ltd, founded in 2003. Brilliance and BMW each hold half the shares. Unlike the other German firms, BMW announced back in 2018 that it was interested in increasing those stakes to 75 percent. Since then, Brilliance has been in turmoil as its largest shareholder is said to be on the verge of bankruptcy. According to a report by the Reuters news agency, VW partner FAW is considering acquiring Brilliance.
With the takeover of Brilliance, FAW would inherit the joint venture and thus increase the number of its joint venture partners to three. FAW operates two other joint ventures with Toyota in Tianjin and Chengdu in addition to those with VW. Toyota, meanwhile, has another joint venture with Guangzhou Auto (GAC) in Guangzhou. Meanwhile, GAC still runs two joint ventures with Fiat-Chrysler in Changsha and with Honda in Guangzhou. Honda, in turn, also cooperates with the Dongfeng Group in Wuhan, which, in addition to Honda, is also affiliated with PSA and Nissan. Ford and Mazda each have a joint venture with Changan Auto in Chongqing. Changan operates another in Shenzhen with PSA. BAIC also cooperates with Hyundai in addition to Daimler – in a company that, among other things, produces virtually all the cabs in the capital.
And now, electromobility has added further partnerships – even though this would no longer have been necessary since 2018. Only Tesla built its Shanghai car factory on its own and has been selling its EVs rolling off the production line for a year. VW had already established an electric joint venture with Jianghuai Automotive (JAC) in Hefei in the central Chinese province of Anhui in 2017. EVs of the Sol brand have been coming off the production line there since September 2019. At the end of 2020, VW increased its stake from 50 to 75 percent with the help of a capital increase and renamed the company from JAC Volkswagen to Volkswagen (Anhui) Automotive.
In the summer of 2018, BMW and China’s Great Wall Motor signed a contract for a 50-50 joint venture called Spotlight Automotive to produce the electric Mini in the coastal city of Zhangjiagang. Construction of a factory began in December 2019, with car production expected to start in 2022.
Then, at the beginning of 2020, Daimler founded a joint venture with Geely in the port city of Ningbo to produce e-Smart models. The joint venture is expected to produce cars starting in 2022; until then, the Smart will still be rolling off the production lines at two plants in Europe. Audi announced its own joint venture with FAW in October 2020, with which the Ingolstadt-based company plans to produce EVs in Changchun from 2024. Accordingly, Audi holds a 60 percent stake in the company.
Also, in 2020, a joint venture between Toyota and BYD was launched. The partners want to develop EVs and batteries. In conclusion, the issue of joint ventures is far from closed – only it will soon be voluntary.
Given the significant challenges, not least those posed by the coronavirus pandemic, it is more than necessary to rethink our trade policy strategy. Because it is quite clear that the old idea of trade policy as the grease of economic development is long outdated. The same goes for the David Ricardo approach, that all you have to do is tear down the trade barriers and then the comparative advantages will bring growth and prosperity. Today, the issues are climate change, workers’ rights, wealth distribution and the UN’s sustainable development targets. The EU’s trade policy is a powerful means of making European interests effective.
That is why we need strategic guidelines for the next ten years. The three central guidelines of the EU Commission are certainly agreeable: a) Trade policy must contribute to the reconstruction after the Covid crisis and to the transformation towards the “Green Deal”; b) Trade policy must make globalization fairer and more sustainable; and c) Trade policy must contribute to making the European Union capable of acting in accordance with its values.
The toolbox of European trade policy needs to be reviewed to implement the guidelines. It is clear that some instruments need to be modernized and others created. For example, a new impetus in the area of digitalization or sustainability will certainly be necessary in the area of WTO. We also need a new border adjustment mechanism, for example, to promote climate-neutral development. A fair shaping of globalization will not be possible without a binding due diligence obligation in supply chains. We will certainly have intensive and probably also controversial discussions with the EU Commission about the specific instruments.
Our relationship with our trading partners in the multipolar world is, of course, also shaped based on the definition of our own interests and strategy. Of course, China, the EU’s largest trading partner for some days now, comes into perspective here. China has undoubtedly developed great economic dynamism and is a stabilizing economic factor right now. But there is also no doubt that China, with its state capitalist system, has a different economic and geopolitical approach to the globalized world than we Europeans would regard as appropriate. In this respect, the three guidelines naturally give rise to different strands of action vis-à-vis China, which then lead to an overall strategy.
There are opportunities to cooperate with China in the area of reconstruction and transformation. Here, the focus is on the WTO, where new rules for digital and climate-friendly trade are needed. But in our bilateral relations, it would also be helpful to reach an understanding of rules to protect against forced technology transfer, the conduct of state-owned enterprises, the transparency of subsidies, etc. Joint projects on climate protection are also conceivable, following the commitment to climate neutrality.
In the area of fair and sustainable globalization, however, there are clear differences. For example, the ratification and corresponding implementation and monitoring of the eight core labor standards of the International Labour Organization is part of the minimum requirements for appropriate action. This must be bindingly agreed upon. Businesses must also help to implement them by means of a European supply chain law. Similarly, I cannot imagine market access for products that are clearly the result of production processes involving forced labor.
We will certainly look at the issue of fair and unfair subsidies from Chinese companies to the European market in the area of the European Union’s ability to act and bring forward legislation. In this context, I hope that we will finally be able to adopt the international procurement instrument in the next few months. The FDI screening mechanism to monitor the acquisition of certain companies, infrastructure or technology that could become a risk to security or public order will be further developed. Strengthening the ability to enforce agreements is also part of this.
Trade policy is a powerful tool of governance. Still, it should be part of a comprehensive approach, including active diplomacy on, for example, what is happening in Hong Kong, or the use of the new mechanism on sanctions for serious human rights violations.
Bernd Lange has been Chairman of the Trade Committee in the European Parliament since July 2014. The SPD politician from Lower Saxony was an MEP from 1994 to 2004 and headed the “Economy, Environment and Europe” department at the DGB district of Lower Saxony-Bremen-Saxony/Anhalt between 2005 and 2009. He returned to the EU Parliament in 2009. Since 2019, he has also been Chair of the Working Group on Fair Trade.
Out of pure curiosity, after finishing high school, Doris Fischer enrolled in Sinology and Business Administration at the University of Hamburg. She didn’t know any Chinese people by name and wasn’t sure if she would even like the program. “After two weeks, I was captivated by it,” she says. The 55-year-old has now been studying China’s economic and industrial policy for around 30 years, and since 2012 as a Professor of China Economics and Business at the Institute of Sinology at the University of Wuerzburg.
Her current research focuses on China’s industrial policy for the energy transition under Xi Jinping and on the Chinese social credit system. There is currently a great deal of public interest in the latter: “The topic has been hyped in the media.” A three-year research project is now to clarify in principle how the social credit system works, the economic logic behind it, and what effects the system could ultimately have on German companies.
It quickly becomes clear that Doris Fischer is passionate about China: She talks fast and is full of energy. She perceives the lack of China expertise in Germany as problematic. In recent years, it has become increasingly difficult to form an independent opinion about the country. “A huge propaganda battle has been going on since the US-Chinese trade war,” she says. Local reporting is often dominated by US media, she says.
Doris Fischer also wonders about the “German Angst” towards the Chinese leadership and what she calls “China technophobia”. “The West likes to point the finger at China’s regime, forgetting that our system also has its flaws,” she says. This is a convenient but ultimately ineffective attitude, she adds. “We can’t just democratize China.” Rather, she says, we need to maintain dialogue while setting limits so that the country abides by international rules. “But to do that, you first need to understand the system.”
The debate on the social credit system is an example. Misuse of the system is, of course, possible and should be criticized. But before that, it is necessary to examine how the system works exactly, says Doris Fischer. Only those informed and those who discuss with the Chinese leadership on an equal footing will be taken seriously.
China has a completely different tradition of mutual trust and social control, which seems unthinkable from a European perspective. While in the West, the rule of law and laws ensure that society adheres to the rules, in China, trust traditionally arises through networks and relationships, says Doris Fischer. It is made public whether someone is trustworthy within the framework of the social credit system: for example, with blacklists for lawbreakers and awards for those who behave in a particularly exemplary manner.
This is not entirely new either. Doris Fischer provides an anecdote from her time in China. She first visited the country in the 1980s, spending two years studying in Wuhan. In 1994, she was a doctoral student at Beijing People’s University. “In the entrance hall of my dormitory, there were lists of students who were diligent and who were late more often.” The social credit system pursues a similar goal, simply with digital technology.
Since her first stay in China, she visits the country for several weeks every year. The human and cultural diversity still inspires her. “China offers me an endless source of scientific questions.” The country is incredibly dynamic, she says, and always presents her with new challenges. “It keeps me mentally fit.” Adrian Meyer
