China tells German parts makers to create local joint ventures

Article by Christian Andrei, on August 27, 2014

China has told three German car parts suppliers that they would no longer be able to independently manage Chinese units and have to create joint ventures with local suppliers, Stefan Wolf, chief executive ElringKlinger told Stuttgarter Zeitung. The decision, once confirmed, would fit the increasingly daunting stance that the National Development and Reform Commission (NDRC) is taking towards the foreign car industry.

NDRC started probing foreign carmakers after receiving complaints that these companies have been overpricing products sold to Chinese customers. According to Wolf, he knew those three companies that are now obligated to seek a partnership with a local company.

He clarified ElringKlinger was not affected by the order, for now. He said that if China gives similar orders to ElringKlinger, it would mean an attack on intellectual property and since 50 percent of the company is being taken away, this means an expropriation.

Wolf remarked that companies targeted by the decision have tendencies to be experts on key technologies and he noted to Stuttgarter Zeitung that ElringKlinger had already passed on a number of know-how to its Chinese division.

China’s move could be an attempt to catch up on know-how and innovation, according to Wolf. While foreign carmakers have to create joint ventures in China, several overseas parts makers have not been subject to the same conditions.

These parts makers alredy have expanded their operations in China and has captured a large chunk of the industry's value chain, thanks to carmakers trying to trim research and development to keep down fixed costs.

In 2012, parts suppliers invested EUR37 billion ($49 billion) on r&d, which is equivalent to 69 percent of global automotive research and development spending, according to consulting firm Oliver Wyman. [source: Reuters.com]

Topics: china, joint venture

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