China said Tuesday it will remove rules which require foreign auto makers to share ownership and profits from the factories in China with Chinese companies by 2022, responding U.S. calls for “a level playing field” in the world’s biggest auto market.
Currently if foreign auto makers wanted to produce cars in China to avoid 25% tariffs, they have to set up 50-50 joint ventures with Chinese partners. Chinese government said that these rules will be eliminated this year for electric vehicles makers, like Tesla Inc. (NASDAQ: TSLA), and for all vehicles by 2022.
This action is considered as a response to President Donald Trump’s policies pressuring China to modify its trade behavior. However, according to Wall Street Journal, people in this industry said the reshaping of China’s auto sectors wouldn’t benefit foreign auto makers that much since many of then have come to rely on their Chinese partners.
Most of those Chinese partners are state-owned enterprises. Foreign auto makers have accepted those rules as a fact of life in a country where foreign businesses can hardly survive without local allies, even though they were reluctant to enter the joint ventures at the beginning.
“GM’s growth in China is a result of working with our trusted joint-venture partners,” said a spokeswoman for GM, which builds cars in China with state-run Shanghai Auto. “We will continue to work with our partners to provide high-quality products and services to consumers.”
However, foreign auto makers could find it difficult to extricate themselves from joint ventures as well, since the partnerships have existed in some cases for more than two decades. Moreover, foreign auto makers might not be able to afford to buy out their Chinese partners.