BEIJING -- China will allow foreign automakers from Volkswagen Group to Tesla to own more than 50 percent of local ventures, removing a two-decade restriction and giving a boost to global companies seeking to capture a greater share of the world's largest car market.
Electric-car makers such as Tesla will see the swiftest benefit, with ownership limitation for such businesses lifting as soon as this year. The cap for commercial vehicles will be eliminated in 2020 and that for passenger vehicles in 2022, the agency that oversees industries said Tuesday.
The move may help diffuse tensions between China and the U.S. after President Donald Trump's intensified rhetoric risked an all-out trade war.
Global automakers may find it easier to manufacture and do business in China, while local makers will be under increased pressure to speed up the building of their own brands.
However, European, U.S. and Japanese automakers are unlikely to quickly ditch partners who would be costly to buy out and whose presence helps negotiate local customs and politics -- even though they may like the idea of keeping all the profits their vehicles generate in China.
"I don't suspect we will see everybody unwind their joint ventures and just go it alone," said Jeff Schuster, senior vice president of forecasting with researcher LMC Automotive. "To unwind all those would be a lot of work and is probably not the right message to your local partner."
China accounts for about half of VW Group's namesake brand sales, while the market is also the most significant buyer of Mercedes, Audi and BMW vehicles.
German and U.S. automakers welcomed the news but said they won't abandon local partners.
VW said it will analyze if China's move leads to new options, saying its existing joint ventures won't be affected.
BMW, which has a big stake in trade relations between Beijing and Washington as the biggest exporter of vehicles from the United States to China, welcomed the car decision. "We believe a more free and flexible business environment will benefit both Chinese and foreign companies in China and the Chinese economy. BMW will continue pursuing mutual benefit and win-win solutions with the local partners," the carmaker said.
BMW said it remained committed to expanding a joint venture with China's BBA and was still discussing how to structure a new partnership for its Mini brand with China's Great Wall Motors.
Daimler, parent company of Mercedes-Benz, said it was happy with its current business set-up in China, adding it was watching regulatory developments with interest.
GM said its growth in China is a result of working with its partners, and that it would keep doing so.
Traditional automakers will need to wait longer for any direct impact and could face more risks than opportunities in ditching their joint venture structures, said James Chao, Asia-Pacific chief at consultancy IHS Markit.
"Foreign companies may already be in a box [in China]," said Chao. The joint venture structure was now so ingrained that 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."
Elon Musk's Tesla in particular is in a position to benefit from the relaxed ownership rules. Musk hasn't been able to secure a deal to open an assembly plant in China, after negotiating with Shanghai's government for more than a year. The sides disagreed on the ownership structure, people with knowledge of the situation said in February. The risk of higher import taxes spurred by Chinese trade friction with the U.S. would be allayed if Tesla were able to secure a production site.
Those losing out include local new-energy vehicle makers such as BAIC Motor and BYD, with BYD in particular set to face tougher competition from any lower-priced Teslas, said Dan Zhuang, an analyst at Rhb Osk Securities Hong Kong. "The pace of the open-up is much faster than the market had thought," Zhuang said. "If Tesla produces from China, BYD may face the pressure to lower price and thus a weaker margin."
China has moved toward eliminating the caps in recent years with promises of their eventual removal, with Bloomberg News reporting in 2016 that the government was considering the move.
China has required foreign automakers to enter into ventures with domestic partners to operate in the country since 1994, with the overseas company holding no more than 50 percent. For years, the so-called "50:50 rule" was a sacred cow for the auto industry, seen as necessary to buy local automakers time to gain the technology and build their brands before giving overseas companies unfettered access to the market.
The removal of the cap signals Chinese officials now have more confidence in their home-grown contenders. The move is "a good stimulus to urge Chinese companies to strengthen their own brands at a faster pace rather than relying on the joint ventures to feed them," Automotive Foresight's Zhang said.
Foreign car brands, meanwhile, now have years of experience from operating in China and believe they can go solo without a local partner guiding them, the analyst said. "In their eyes, Chinese have little contribution to the brands and products," Zhang said.
Reuters contributed to this report