Daimler ‘to seek majority control of its main China joint venture’

Mercedes-Benz parent company Daimler has called on China to ease ownership restrictions to ensure a ‘level playing field’ for foreign firms. (Shutterstock)
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Updated 18 December 2019

Daimler ‘to seek majority control of its main China joint venture’

  • Sources point to expansion plan as tension mounts between Berlin and Beijing over possible ban on Huawei

HONG KONG: Daimler is seeking to buy a majority stake in its Chinese operations, three people familiar with the matter told Reuters, after initial efforts to raise its stake failed and as Chinese investors tighten their grip on the German carmaker.

Daimler’s moves come at a time of heightened tension between Berlin and Beijing as German lawmakers debate whether to bar China’s Huawei from local 5G networks and as German companies look to ease Chinese ownership restrictions.

Daimler has been exploring several options to strengthen its control of Beijing Benz Automotive Co, its Chinese joint venture with BAIC Group, including a plan to raise its stake to 75 percent from the current 49 percent, two of the people familiar with the matter said.

Daimler faces some opposition within BAIC as the Chinese partner wants to maintain control of the highly profitable business that has benefited from strong sales of Mercedes-Benz cars and helped it fund expansion into other activities, sources, who declined to be named, told Reuters.

Daimler, which owns the Mercedes-Benz brand, declined to comment on its China expansion plans. BAIC did not respond to requests for comment.

Daimler’s cash cow joint venture with BAIC is the main profit contributor of BAIC Group’s Hong Kong listed company BAIC Motor Corp, which also has assets of BAIC’s own brand cars and its joint venture with South Korea’s carmaker Hyundai Motor.

In 2018, BAIC Motor reported 37.01 billion yuan ($5.26 billion) gross profit while that of Beijing Benz Automotive contributed 40.52 billion yuan, excluding the profit from the China JV, BAIC Motor was loss-making last year.

Beijing Benz Automotive, which started building and selling locally made vehicles in 2006, sold around 485,000 units last year, accounting for more than 70 percent of Mercedes-Benz’s China sales.

In China, the world’s biggest auto market, 525,890 Mercedes-Benz cars were sold in the first nine months this year, up 5 percent from a year earlier even as the total market keeps declining. Its German rival Audi sold 491,040 units and Munich-based BMW sold 526,017 BMW and Mini-branded cars over the same period in China.

Daimler’s stake purchase ambitions come as BAIC is pursuing a separate deal to buy a 10 percent stake in the German carmaker, sources said, to upstage Zhejiang Geely Holding Group, which owns a 9.69 percent Daimler stake.

If BAIC clinches a 10 percent shareholding, Chinese companies will control just under 20 percent of the luxury carmaker, enough to block significant decisions at Daimler’s shareholder meeting, such as nominating directors or approving major investments.

These key decisions need at least 75 percent of votes cast at an annual general meeting, giving any shareholder with a 20 percent stake a blocking minority.

At Daimler’s 2019 annual general meeting, only 52.91 percent of the company’s share capital was represented.

Daimler held talks with BAIC in 2018 about increasing its ownership of the China joint venture, but the talks petered out, prompting Daimler’s management to ask Goldman Sachs to explore ways to increase its 9.55 percent stake in BAIC Motor.

In 2018 Beijing started easing foreign ownership rules, allowing German carmaker BMW to buy a 75 per cent stake in its joint venture with Brilliance China Automotive Holdings Ltd. by 2022, when foreign firms will be permitted to control a non-electric passenger car company in China, prompting Daimler to pursue similar ambitions.

Daimler has urged the German government to press Beijing to ease ownership restrictions to ensure a “level playing field,” just as China’s ambassador to Germany warned Berlin not to block China’s Huawei from supplying German telecoms equipment.

The US, which is embroiled in a global trade dispute with China, has urged German chancellor Angela Merkel to exclude Huawei from mobile equipment auctions on security grounds.

Huawei says it is an independent company and dismisses such concerns as baseless attempts by the US to damage its business and reputation.

Last week China’s ambassador to Germany, Ken Wu said Beijing could retaliate if Huawei was excluded from Germany’s 5G rollout.

“If Germany were to take a decision in the end that would exclude Huawei from the German market, then it should expect consequences,” the Chinese ambassador said. “The Chinese government will not just stand by and watch.”


Lebanon plunged into ‘deliberate depression’: World Bank

Updated 01 December 2020

Lebanon plunged into ‘deliberate depression’: World Bank

  • The fall 2020 edition of the Lebanon Economic Monitor predicted the economy will have contracted by 19.2 percent this year
  • Lebanon’s economy started collapsing last year as a result of years of corrupt practices and mismanagement

BEIRUT: Lebanon’s economy is sinking into a “deliberate depression,” the World Bank said Tuesday in a damning report stressing the authorities’ failure to tackle the crisis.
The fall 2020 edition of the Lebanon Economic Monitor predicted the economy will have contracted by 19.2 percent this year and projected a debt-to-GDP ratio of 194 percent next year.
“A year into Lebanon’s severe economic crisis, deliberate lack of effective policy action by authorities has subjected the economy to an arduous and prolonged depression,” a World Bank statement said.
Lebanon’s economy started collapsing last year as a result of years of corrupt practices and mismanagement.
The crisis was made worse by a nationwide wave of anti-government protests that paralyzed the country late last year and the Covid-19 pandemic this year.
The August 4 Beirut port blast, one of the largest non-nuclear explosions in history, brought the country to its knees and further fueled public distrust.
“Lebanon is suffering from a dangerous depletion of resources, including human capital, with brain drain becoming an increasingly desperate option,” the World Bank warned.
In 2020, Lebanon defaulted on its debt, banks imposed capital controls and inflation has reached triple-digit rates, dragging the country into its worst ever economic crisis.
Instead of taking emergency measures to rescue the economy, Lebanon’s political elite has continued to dither and bicker.
The previous government headed by Hassan Diab failed to adopt ambitious policies to tackle the crisis. It resigned under pressure over the blast nearly four months ago and a new cabinet has yet to be formed.
“Lack of political consensus on national priorities severely impedes Lebanon’s ability to implement long-term and visionary development policies,” said Saroj Kumar Jha, World Bank regional director.
He called for the quick formation of a new government capable of implementing short-term emergency measures and addressing long-term structural challenges.
“This is imperative to restore the confidence of the people of Lebanon,” he said.
An annual index compiled by Gallup that tracks people’s experience of stress and sadness said “no other country in the world saw negative experiences skyrocket across the board as much as Lebanon.”
The Negative Experience Index’s data was collected before the Beirut port blast, Lebanon’s worst ever peace time disaster.