China to Remove Auto Ventures' Foreign-Ownership Limit by 2022

China will allow foreign automakers from Volkswagen AG to Ford Motor Co. to own more than 50 percent of local ventures, removing a two-decade restriction and giving a boost to global companies seeking to capture a greater share of the world’s largest car market.

In a move helping electric-car makers such as Tesla Inc., the ownership limits for new-energy vehicles will be removed this year, National Development and Reform Commission said in a statement on its website Tuesday. China will do away with the limit for commercial vehicles in 2020 and that for passenger vehicles in 2022.

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Potential beneficiaries include companies from Daimler AG and BMW AG to General Motors Co. and Toyota Motor Corp., all set to find it easier to manufacture and do business in China. The country’s local auto makers meanwhile will be under increased pressure to speed up the building of their own brands.

Shares in German carmakers all gained on the news, reversing earlier losses. China accounts for about half of Volkswagen’s namesake brand sales, while the world’s biggest car market is also the most significant buyer of luxury Mercedes, VW’s Audi unit and BMW vehicles. Volkswagen rose as much as 0.9 percent to 173.48 euros. Both BMW and Mercedes-maker Daimler rose about 0.5 percent.

Elon Musk’s Tesla in particular is in a position to benefit from the relaxed ownership rules, which take effect this year for electric cars. Musk hasn’t been able to secure a deal to open an assembly plant in China, after negotiating with Shanghai’s government for more than a year. The sides disagreed on the ownership structure, people with knowledge of the situation said in February. The risk of higher import taxes spurred by Chinese trade friction with the U.S. would be allayed if Tesla were able to secure a production.

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China has moved toward eliminating the caps in recent years with promises of their eventual removal. China has required foreign auto makers to enter into ventures with domestic partners to operate in the country since 1994, with the overseas company holding no more than 50 percent.

For years, the so-called “50:50 rule” was a sacred cow for the auto industry, seen as necessary to buy local carmakers time to gain the technology and build their brands before giving overseas carmakers unfettered access to the market.

— With assistance by Ying Tian, Christoph Rauwald, Elisabeth Behrmann, and Kevin Buckland

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