Mr. Zhang Xiaoyu gave an interesting and inspiring speech during the opening ceremony of the Automotive Manufacturing in China conference in Beijing Wednesday evening. Mr. Zhang who is presently the Deputy Director of the China Confederation of Machinery Industry has held many high level positions in the Chinese government relating to the automobile industry during his career.
While not presently a government employee, Mr. Zhang is certainly someone who is “in the know” which is why it came as a surprise when Mr. Zhang revealed 2010 as the year when China will likely change the present regulations requiring foreign automobile manufacturers to form joint ventures with Chinese partners in order to manufacture cars for sale in the China.
China set down regulations for its joint venture legislation relating to automobile manufacturing in 1994 and 2004. Given the rapid growth China’s automobile industry has seen during the past four years a change in legislation in 2010 would not be off track.
One wonders how this news will affect China’s automobile industry before 2010? Will foreign manufacturers put joint venture negotiations on hold until regulations change so they can go it alone in China? My own bet is “No” because China is far too important a market to put on hold for 2-3 years. We may see foreign investors trying to insert clauses into joint venture agreements allowing for pre-arranged buy-out terms once regulations do change, but it will be interesting to see if any Chinese partners agree with such terms. Exciting times.
If the opportunity did come, most foreign players would abandon the JV arrangement in a heartbeat.
Where would that put inefficient state owned operations like FAW? Swimming alone in that big and forboding sea of global competition wouldn’t be easy.