China has announced that it will end foreign ownership caps on local car companies by 2022, signalling the end of a rule that has been in place since 1994 which limits foreign automakers to owning a 50% share of any local venture in the world’s largest auto market. The policy was implemented to help support domestic carmakers compete against more advanced international rivals.

According to Automotive News, the Republic will also remove restrictions on new-energy vehicle ventures this year, a huge decision that will open the market to carmakers such as Nissan, and especially Tesla. The publication said the move comes amid a trade standoff between Washington and Beijing, although China is adamant that the two are unrelated as it wishes to portray itself as “open for business.”

As such, limitations imposed on companies making fully electric and plug-in hybrid vehicles will be removed in 2018, commercial-vehicle firms in 2020 and the wider passenger vehicle market by 2022, said China’s state planner in a statement.

The Wall Street Journal also said that China will significantly reduce tariffs – currently at 25% – imposed on imported vehicles, another important concession to foreign carmakers looking to further tap China’s growth. As it is, foreign automakers are forced to set up 50-50 joint ventures with its partners in China if they want to locally produce cars to avoid the 25% tariffs.

Analysts said the main beneficiaries in the short term would be carmakers focused on new-energy vehicles, such as Tesla, which has been seeking to set up a wholly-owned production facility in Shanghai.

Last month, Tesla chief Elon Musk said China’s tough auto rules for foreign firms created an uneven playing field as scores of local and international companies compete for a slice of China’s fast-growing market for green cars. However, the loosening of the rule could raise pressure on domestic carmakers like BYD, a local outfit backed by Warren Buffet.


The Denza 500 is a full-electric car developed by Daimler and BYD

While the prospects seem promising to new-energy carmakers, traditional automakers on the other hand, will need to wait longer for any direct impact. In fact, they may even see more risks than opportunities in ditching their joint venture structures, according to Asia-Pacific chief at consultancy IHS Markit, James Chao.

“Foreign companies may already be in a box [in China],” said Chao, adding the joint venture structure was now so ingrained many might not want to change it. “While getting a bigger share could be advantageous in terms of boosting profits, they may actually be already too dependent on their Chinese partners to sever those ties.”

A senior General Motors (GM) executive recently said that even without ownership caps, the Detroit-based carmaker would not cut ties with local partner SAIC Motor, adding that GM would not be as successful in China on its own. GM, which is one of the biggest players in China with a 14% market share, also said the company’s “growth in China is a result of working with our trusted joint venture partners.”


Honda plans to launch an electric HR-V in China this year

Nissan released a statement saying that it would “monitor how any specific policies develop and will plan accordingly,” whereas Honda said its China business had grown thanks to strong local tie-ups and currently “has no plans to change our capital relationship.”

“We have no plans to change our investment ratio,” said Keitaro Nakamura, a China-based spokesman for Honda Japan, which operates joint ventures with local state-run automakers Guangzhou Automobile Group and Dongfeng Motor. “If we had this option 20 years ago when we were first coming into the market, we might have thought differently,” he added.