German luxury carmaker BMW recently confirmed that it is paying $4.2 billion in order to gain majority control of its main joint business venture in China. BMW is making history in China as it is one of the first few companies to gain majority control of their venture business in the country. Many observers saw this as a business strategy by China as the country slowly starts to open up its ownership regulations, especially the one concerned with the auto market.
The German luxury car maker said that the investment will increase the company's stake with Brilliance China Automotive Holdings Ltd. BMW said that it is increasing its stake from 50 percent to 75 percent. The deal is expected to close in 2022, at a time when all rules regarding capping foreign ownership on all car ventures will be lifted.
It is important to note that prior to this historic deal, China has imposed very strict regulations when it comes to foreign ownership on almost every industry and sector. China strictly imposes a maximum of 50 percent foreign ownership on any business venture.
With China opening up its regulations, many experts and analysts agree that this is China's way of leveraging its massive consumer market which is largely untapped by foreign companies. Many believe that it will also help boost the country's economy, especially now that the country is embroiled in a bitter trade war with the world's largest economy, the United States.
Many believe that with this historic deal, BMW will most likely shift some of its production to China. This is in order to help protect the company's profits which are experiencing quite a downturn following the start of the trade war between China and the United States. The trade war has raised import costs from cars manufactured in the United States.
China's latest deal with BMW is expected to encourage some of the carmaker's closest rivals to come up with the same deal. Aside from the looming effects of the trade war, many market analysts describe China's market as one of the biggest in the world, the majority of it is still virtually inaccessible by foreign companies. Among the most talked about to make a deal with China is Daimler, the owner of luxury car brand Mercedes.
In a speech, BMW Chief Executive Officer Harald Krueger described the deal as a start of "a new era." On the same speech, he thanked Chinese Premier Li Keqiang who according to him "personally supported" the company's expansion plan.
