Could European companies benefit from the U.S.-China trade spat?
German car maker
is hoping so. Chinese Premier
this week said it could become the first foreign company to be allowed majority control of an auto-sector joint venture in China. Foreign auto makers currently have to share factory ownership and profits with a local partner, but Beijing promised in April that those restrictions would be phased out by 2022: BMW has a 50:50 joint venture with Hong Kong-listed Brilliance China, for example.
The details behind Mr. Li’s comments have yet to be revealed. Still, it seems the Chinese government is eager to use the German company’s situation to portray itself as keeping promises to open up its economy, even as tensions with the U.S. escalate.
Whatever Beijing’s motives, it will be good news for BMW if it’s allowed to raise its stake in its current JV before its rivals. The company delivered nearly 600,000 cars to China last year, with two-thirds of those produced by the Brilliance partnership. That made China BMW’s biggest single market, accounting for nearly 20% of its sales; including royalties, it earns better margins there than elsewhere globally too, according to analysts at Jefferies. BMW already plans to manufacture more cars locally, and having a higher stake in its JV should help it capture more of the resulting profit.
BMW investors will likely wait for the fine print before cheering all this—its shares are only up 1% in the past two days. The news hasn’t been quite so brilliant for its Chinese partner—Brilliance’s share price has dropped 17% in the same period. The fear is that Beijing, in its attempt to lure Europe, could sacrifice the interests of Brilliance shareholders, among whom the largest is controlled by the Liaoning provincial government.
While Brilliance is left to take one on the chin for Mother China, BMW will be hoping Beijing speeds ahead with this particular offer.
Write to Jacky Wong at JACKY.WONG@wsj.com