Suppliers Operating In China Will Be Forced To Choose Local Joint Venture Partnership, Says German Media
|   Thursday, September 04, 2014
Three German auto component suppliers operating on the Chinese market were informed by local authorities of the need to sign a joint-venture partnership with a company in that country, according to German newspaper Stuttgarter Zeitung, quoted by Automotive News.

In other words, the Germans are forced by the Chinese to sign a joint-venture partnership which involves close collaboration with a Chinese company in that field to be able to continue operating on that market.
The three German companies are in this situation after receiving local complaints about overcharging Chinese customers. However, German journalists have not received from their source the names of the three suppliers who have these problems in said country.

The suggestions of the National Development and Reform Commission of China involve a veiled attack on intellectual property since the manufacturers and suppliers involved can produce alone all necessary components in China, but are not permitted unless they are associated with a Chinese partner. This implies sharing patents with the Chinese, which would help them save billions of dollars in research and development, having "ready-made" access to the latest technological achievements of foreign companies.

"The Chinese state has told several (German car) suppliers that they are no longer allowed to operate their Chinese subsidiaries on their own but only as part of a joint venture in the future," said ElringKlinger CEO Stefan Wolf.

The CEO of ElringKlinger, Stefan Wolf, says that they are not affected by what is happening now in China, but that the impression is that this rule is an attempt to force the hands of German companies, especially after just some companies that have developed innovative technologies are being "targeted". Representatives of Robert Bosch in China said they have not encountered any problems in this area, although they are an exception because they already have signed joint venture partnerships.

"We believe that foreign investment will continue to play a vital role in China's economic development and foresee (an) improving investment environment of fairness and open competition in China," said Bosch in a statement.

Right now, car manufacturers operating in China are forced to seek joint venture partnerships with their local counterparts to obtain tax advantages. The few brands that do not use these practices are subject to additional fees. The representatives of China International Capital Corp, an investment bank in the country, are saying that providers will not actually be required to have a joint venture partner in China because the necessary changes would be too powerful in terms of legislation. For this reason the preferred variant is to "suggest" resorting to such a partner, and thus the favorable choice is rewarded through various tax benefits.

37 billion euro has been invested by auto component suppliers in 2012 for global research and development. This amount is equivalent to 69 percent of overall expenditures on research and development in the automotive industry, according to consulting firm Oliver Wyman.

Therefore, their share of global value creation in the industry is expected to reach 81.1 percent by 2025, up from the 77.3 percent in 2012, according to the same company.
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