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Daimler-BAIC Motor tie-up indicates further market liberalization

Daimler AG’s tie-up with BAIC Motor (see Daimler Seeks Mutual Success With BAIC Motor After Close Of Equity Purchase) has ushered in a new era in how foreign and Chinese automakers cooperate with one another.

By completing its investment of a 12 percent stake in BAIC Motor, Daimler has become the first non-Chinese automotive company to acquire an interest in a Chinese passenger vehicle OEM.

Coincidentally, just as the two partners were celebrating the closing of the transaction at a ceremony, the Ministry of Commerce (MOFCOM) announced at a regularly held press conference that China would further open up foreign investment thresholds in the steel, chemical and automotive industries. Measures include relaxing restrictions in the areas of registered capital, equity ownership ratios and business scope.

The two seeming isolated events offer a glimpse into the many possible new ways foreign automotive companies can invest in China’s auto industry as it further opens up.

By elevating its position to a shareholder from simply a joint venture partner, Daimler will, in the words of Chairman Dieter Zetsche, “have even higher vested interests” and “be motivated to support the activities of not only the Mercedes-Benz brands but also BAIC Motor’s indigenous brands.”

Those vested interests are possible positive returns on investment in a partner and key Chinese player that Daimler believes will grow, and thus becoming part of that growth. The deal was closed and approved by the relevant authorities in less than 10 months after the signing of the agreement. It paves the way for a smooth IPO of BAIC Motor, most likely in Hong Kong. While no decisions have been made yet, there is also a possibility that BAIC Motor’s parent company BAIC Group or another Chinese company could invest in Daimler.

MOFCOM’s announcement that restrictions on equity ownership requirements for foreign companies would be relaxed in the future means that it is now only a matter of time before the 50:50 rules on whole vehicle JV assembly projects is lifted.

The Daimler-BAIC Motor deal could be the beginning of the emergence of diversified investment models in China’s auto market. It would not be surprising to see a foreign company holding a majority stake in a Chinese OEM, nor would it be surprising to see a Chinese company take a stake in a global OEM. The single model where two companies form a 50:50 equity JV in China may be history.

The Chinese and global auto industries may see a new landscape.


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