German carmaker the 1st beneficiary of policy to open auto industry wider

BMW AG said it plans to take a majority stake in its Chinese joint venture, the first move by a global carmaker to seek control of local partnerships in China as the country opens its automotive sector wider.

It has reached an agreement with Brilliance China Automotive Holdings to raise its equity in their joint venture to 75 percent from the current 50 percent, according to a statement the German premium carmaker issued on Thursday.

The transaction, which is valued at 29 billion yuan ($4.16 billion), is expected to be completed when the Chinese authorities remove limits on foreign ownership in passenger car joint ventures in 2022.

China announced in April the phasing out of all equity caps in the automotive industry within five years, with those on new energy vehicle firms having been removed this year.

BMW's equity change will help boost its development in the country, its largest market worldwide, after 15 years of localized production at its joint venture BMW Brilliance Automotive.

With two plants in Shenyang, capital of northeastern China's Liaoning province, the joint venture is producing six BMW models, with their combined production totaling 400,000 vehicles last year.

Construction of a new plant started in Tiexi district of Shenyang on Thursday, which received congratulatory letters from Premier Li Keqiang and German Chancellor Angela Merkel.

"BMW AG has become the first beneficiary of China's policy to remove limits on foreign ownership in passenger car joint ventures," said Premier Li in the letter. "It has created a new era and a win-win scenario for the integrated development of the Chinese and German automobile industry."

"Building on this strong foundation, we are looking forward to an even more successful future together," said Harald Krueger, chairman of BMW.

Krueger said the term of the joint venture has been extended from 2018 to 2040, and BMW will invest 3 billion euros to raise its annual capacity to 650,000 vehicles from the early 2020s, which will create 5,000 more new jobs.

The plants will be made ready for producing more BMW models, including electric ones. BMW has also built a battery plant in China.

Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said BMW will introduce models even faster when it becomes the controlling shareholder of the joint venture starting from 2022.

Zhang said that will produce a domino effect, prompting BMW rivals to speed up localization as well, because the premium car market is a place where "the fast fish eats the slow fish".

BMW's equity change may set an example for other global carmakers to follow suit as well, although it depends on how they have worked with their Chinese partners, he added.

"Many of them have the intention to change, but how and when it will happen depends on how strong or capable the local partner is," Zhang said.