Foreign electric vehicle battery makers get greenlight in China’s free trade zones

Foreign wholly-owned petrol stations will also be allowed as part of State Council’s FDI relaxation

PUBLISHED : Tuesday, 19 July, 2016, 10:42pm
UPDATED : Tuesday, 19 July, 2016, 10:58pm

China, the world’s biggest auto market, will allow foreign firms to set up wholly-owned electric vehicle battery manufacturing plants and foreign wholly-owned petrol stations in four pilot zones as the State Council relaxed rules on foreign direct investment.

The measures apply to the free trade zones of Shanghai, Guangdong, Tianjin and Fujian, according to a State Council circular dated July 1 and publicised on Tuesday.

China is the world’s largest and fastest-growing electric vehicle market, with the central government on an aggressive push to shift to new energy vehicles by offering massive subsidies.

Until now, a foreign ownership stake in electric vehicle battery manufacturing plants was restricted to less than half. LG and Samsung, the world’s two largest electric vehicle battery manufacturers that together control one-third of the global market, set up plants in Nanjing and Xi’an respectively last October.

“This will attract more foreign electric vehicle battery makers to set up subsidiaries in China and help the country bridge the gap between its own production capacity and growing demand,” said Hannah Li, a strategist at UOB Kay Hian.

Li said introducing foreign battery makers to the free trade zones will intensify competition for local players such as BYD, but the move could indirectly benefit Chinese electric vehicle manufacturing by reducing their cost of import.

LG Chem and Samsung SDI, the battery-manufacturing units, have not been able to get their Chinese-made batteries certified by Beijing for state subsidies, which restricted their products’ appeal to buyers, as the subsidy could account for as much as 40 per cent of the price of an electric vehicle in China.

The state council circular also removed a requirement for foreign oil companies to have a Chinese controlling partner if they operated more than 30 fuel stations in mainland China – a market with almost 100,000 stations in total. They are now allowed to set up wholly-owned petrol stations in the four trade zones.

Sanford Bernstein senior analyst Neil Beveridge said although the trade zones – each of around 120 square kilometres or about one-tenth the size of Hong Kong – may not offer room for the operation of big fuel retail chains, it is a “step towards liberalising the retail market” as it may be rolled out nationwide in the future. He added that it could also lead to a gradual opening up of the domestic fuel refining industry dominated by state-backed PetroChina and China Petroleum & Chemical (Sinopec). The market is fairly mature in terms of relatively slow growth in the number of fuel stations, Beverage said, but there is much room for increasing revenue per station through improving product and service offerings, as demonstrated by the improvement in non-fuel sales observed after Sinopec’s spin-off of its fuel retail unit and cooperation with strategic investors.

The circular also allowed foreign investors to set-up wholly-owned ocean shipping transport companies in the Shanghai free trade zone, among other things.