BMW says legal hurdles prevent bigger Brilliance JV stake in China

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FRANKFURT (Reuters) -- BMW Group says legal barriers prevent the German automaker from increasing its stake in a Chinese joint venture with Brilliance Automotive, even as rival Daimler appeared to have found a loophole to soften strict ownership rules.

"The market is regulated. This question is not relevant, it is legally not possible," said Friedrich Eichiner, BMW's chief financial officer.

European and U.S. manufacturers are eager to increase their footprint in China, the world's largest car market, but have been limited to owning 50 percent or less of joint venture companies run together with Chinese state-owned enterprises.

In China, BMW makes the 3 series and 5 series at factories run by BMW Brilliance Automotive, a 50:50 joint venture company it runs together with Brilliance.

But BMW has also been helping Brilliance develop a non-BMW branded minibus for the Chinese market, in a move that some analysts say may amount to a prelude to a broader alliance.

Last month, Olaf Kastner, CEO of BMW Brilliance Automotive, also deflected a question about whether BMW would raise its stake in the Chinese joint venture company.

"I think you would have to ask my shareholders to answer that question. We had a very good run and in that respect we have a lot of discussions about how we continue localization. The rest can be answered by Hong Kong or Munich," Kastner told Reuters in an interview.

Daimler’s BAIC JV

In November last year, rival automaker Daimler appeared to have found a way to soften the strict ownership limitations in China where it has a joint venture with BAIC Group.

Daimler was allowed to take a 12 percent stake in BAIC Motor, a Hong Kong-listed passenger car unit of BAIC Group.

As part of the same deal, Daimler allowed BAIC to increase its stake in the production joint venture Beijing Benz Automotive Company (BBAC) to 51 percent, while Daimler was allowed to raise its stake in a sales joint venture company, Beijing Mercedes-Benz Sales Service Co., to 51 percent.

Shortly after, China's auto lobby made clear its opposition to any moves by Beijing to ease restrictions on foreign ownership in the car industry, saying this would seriously weaken the position of domestic carmakers.

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