China Pledges Fair Treatment Of Foreign Auto Firms In NEV Program

Inside US-China Trade Newsletter, November 23, 2011

At the Joint Commission on Commerce and Trade (JCCT), China this week offered a number of confirmations and clarifications with respect to forced technology transfer and availability of subsidies that would mean fair treatment of foreign auto firms as they seek to compete for market share and set up production facilities for electric vehicles, according to a fact sheet issued at the conclusion of the Nov. 20-21 meeting in Chengdu, China.

China is projected to manufacture five million of these new energy vehicles by the year 2020. An auto industry source said the statements in the fact sheet — if they are implemented as written — “on the surface” would seem to suggest that “Christmas done come real early this year.”

In the joint fact sheet, China “confirmed that it does not and will not maintain measures that mandate the transfer of technology.” It also “clarified” that “‘mastery of core technology’ does not require technology transfer for NEVs,” according to the fact sheet.

The Chinese further confirmed that “the establishment of brands is a corporate decision and that the Chinese government does not and will not impose any requirements for foreign-invested companies to establish domestic brands in China."

In addition, China pledged that “foreign-invested enterprises are eligible on an equal basis for subsidies or other preferential policies for NEVs with Chinese enterprises, and that these subsidies and preference programs will be implemented in a manner consistent with WTO rules.”

The latter public confirmation may mark an advance over what has been explicitly stated in the past about eligibility for NEV programs, according to Bill Russo, president of the Beijing-based automotive consultancy Synergistics Limited.  “While it was never stated who would be eligible for subsidies, it was never unambiguously stated whether foreign invested joint ventures would be eligible, and this apparently clarifies that they are indeed eligible,” he said in a Nov. 21 email. Russo noted, however, that the second part of the sentence that mentioned general consistency with WTO rules, “leaves room for future adjustments.”

According to another industry source, the test case for Chinese credibility on its JCCT NEV statements will be General Motors’ Chevy Volt, which it can be expected to seek to import into China soon, possibly before the end of 201, even though GM has already agreed to produce a domestic brand NEV, the Baojun, in its joint venture with Shanghai Automotive Industry Company (SAIC).

China also affirmed at the JCCT that the “views of all stakeholders will be considered,” including those of the United States, as it develops “possible future NEV support programs.”

U.S. auto firms in the past complained that China’s National Development and Research Commission (NDRC) has informally been forcing technology transfer by not approving additional production capacity or new plants unless the foreign joint venture partner agrees to establish a domestic brand in the NEV space (Inside US-China Trade, March 16, 2011).

As a result, nearly all major foreign automakers except Ford have already agreed to produce a domestic NEV brand. 

U.S. automakers also had been worried that draft regulations by NDRC and the Ministry of Industry and Information Technology (MIIT) implementing the NEV policy were aiming to force technology transfer by requiring that any NEV joint venture must demonstrate “mastery” of at least one of three key technology areas: electric batteries, motors or control systems. Given the relative advanced state of foreign firms’ technology in these areas compared to that of potential domestic partners, the fear was that such technology would have to be provided by the foreign firm into the NEV JV.

Another JCCT outcome unveiled on Nov. 21 was a Chinese assurance that it will provide “a fair and level playing field for all companies, including U.S. companies, in China’s newly emerging industries.”

Those industries include high-end equipment manufacturing, energy-saving and environmentally-friendly technolo- gies, biotechnologies, new generation information technologies, alternative energy, advanced materials, and NEVs, according to the fact sheet.

According to data provided by U.S. industry, China plans to invest $1.5 trillion in those sectors over the next five years.

Other JCCT outcomes were announced with respect to medical devices, pharmaceuticals, smart grid technologies, standards and conformity assessment, telecommunications goods and services, and travel and tourism, The document also outlines a series of “cooperative activities” the two sides have agreed to pursue under the auspices of the JCCT IPR Working Group, as well as under the JCCT Commercial Law Working Group and with regard to cloud computing and motorcycles. 

China Pledges Fair Treatment Of Foreign Auto Firms In NEV Program