China to relax restrictions on foreign carmakers

China will initiate a pilot program to relax foreign firms' ownership restrictions for businesses in its free trade zones that involve new energy and special use vehicles, said the foreign ministry on Thursday.

So far, foreign carmakers wanting to produce cars in the country must have local partners, regardless of whether they operate inside or outside free trade zones, and their stakes cannot exceed 50 percent of the joint ventures.

In a news release, the ministry said China will also gradually cut tariffs on imported cars, which currently stand at 25 percent.

China has been loosening control over the new energy car sector. The country has limits on the number of joint ventures a foreign carmaker can have, but in June authorities added a footnote to the rule saying that partnerships dedicated to new energy cars are an exception.

Both the Ministry of Commerce and the National Development and Reform Commission have in the past months vowed to further open up the new energy vehicle sector.

Bill Peng, partner at the consulting firm PwC's Strategy&, said the move may be made for the benefit of Tesla Inc, which is planning to build a plant in China, while US President Donald Trump is on his state visit to China.

Tesla has been in talks with the Shanghai government to build production facilities in the region. Earlier this month, CEO Elon Musk said the carmaker expects to start manufacturing cars in China in about three years.

Yale Zhang, managing director of the consulting firm Automotive Foresight, said it is unlikely that carmakers will leave in droves for the free trade zones.

"Cars produced there are not exempt from the 25 percent import tax, so unlike Tesla, which targets high-end customers, the additional cost will wipe out the price advantage for most volume brands," he told China Daily.

Zhang said he did not think China would take a step so bold as to remove the investment cap for both gasoline cars and new energy vehicles very soon, arguing that Chinese automakers still have quite a low market share.

Chinese automakers combined accounted for 42.9 percent of the Chinese passenger car market from January to September, according to statistics from the China Association of Automobile Manufacturers.

Peng said he did not believe the cap for the industry as a whole would be removed all of a sudden, adding that the process may take at least five to eight years.