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.”


China economy grows in 2020 as rebound from coronavirus gains

Updated 18 January 2021

China economy grows in 2020 as rebound from coronavirus gains

  • Growth in the three months ending in December rose to 6.5 percent over a year earlier
  • China’s quick recovery brought it closer to matching the US in economic output

BEIJING: China eked out 2.3 percent economic growth in 2020, likely becoming the only major economy to expand as shops and factories reopened relatively early from a shutdown to fight the coronavirus while the United States, Japan and Europe struggled with rising infections.
Growth in the three months ending in December rose to 6.5 percent over a year earlier as consumers returned to shopping malls, restaurants and cinemas, official data showed Monday. That was up from the previous quarter’s 4.9 percent and stronger than many forecasters expected.
In early 2020, activity contracted by 6.8 percent in the first quarter as the ruling Communist Party took the then-unprecedented step of shutting down most of its economy to fight the virus. The following quarter, China became the first major country to grow again with a 3.2 percent expansion after the party declared victory over the virus in March and allowed factories, shops and offices to reopen.
Restaurants are filling up while cinemas and retailers struggle to lure customers back. Crowds are thin at shopping malls, where guards check visitors for signs of the disease’s tell-tale fever.
Domestic tourism is reviving, though authorities have urged the public to stay home during the Lunar New Year holiday in February, normally the busiest travel season, in response to a spate of new infections in some Chinese cities.
Exports have been boosted by demand for Chinese-made masks and other medical goods.
The growing momentum “reflected improving private consumption expenditure as well as buoyant net exports,” said Rajiv Biswas of IHS Markit in a report. He said China is likely to be the only major economy to grow in 2020 while developed countries and most major emerging markets were in recession.
The economy “recovered steadily” and “living standards were ensured forcefully,” the National Bureau of Statistics said in a statement. It said the ruling party’s development goals were “accomplished better than expectation” but gave no details.
2020 was China’s weakest growth in decades and below 1990’s 3.9 percent following the crackdown on the Tiananmen Square pro-democracy movement, which led to China’s international isolation.
Despite growth for the year, “it is too early to conclude that this is a full recovery,” said Iris Pang of ING in a report. “External demand has not yet fully recovered. This is a big hurdle.”
Exporters and high-tech manufacturers face uncertainty about how President-elect Joseph Biden will handle conflicts with Beijing over trade, technology and security. His predecessor, Donald Trump, hurt exporters by hiking tariffs on Chinese goods and manufacturers including telecom equipment giant Huawei by imposing curbs on access to US components and technology.
“We expect the newly elected US government will continue most of the current policies on China, at least for the first quarter,” Pang said.
The International Monetary Fund and private sector forecasters expect economic growth to rise further this year to above 8 percent.
China’s quick recovery brought it closer to matching the United States in economic output.
Total activity in 2020 was 102 trillion yuan ($15.6 trillion), according to the government. That is about 75 percent the size of the $20.8 trillion forecast by the IMF for the US economy, which is expected to shrink by 4.3 percent from 2019. The IMF estimates China will be about 90 percent of the size of the US economy by 2025, though with more than four times as many people average income will be lower.
Exports rose 3.6 percent last year despite the tariff war with Washington. Exporters took market share from foreign competitors that still faced anti-virus restrictions.
Retail spending contracted by 3.9 percent over 2019 but gained 4.6 percent in December over a year earlier as demand revived. Consumer spending recovered to above the previous year’s levels in the quarter ending in September.
Online sales of consumer goods rose 14.8 percent as millions of families who were ordered to stay home shifted to buying groceries and clothing on the Internet.
Factory output rose 2.8 percent over 2019. Activity accelerated toward the end of the year. Production rose 7.3 percent in December.
Despite travel controls imposed for some areas after new cases flared this month most of the country is unaffected.
Still, the government’s appeal to the public to avoid traditional Lunar New Year gatherings and travel might dent spending on tourism, gifts and restaurants.
Other activity might increase, however, if farms, factories and traders keep operating over the holiday, said Chaoping Zhu of JP Morgan Asset Management in a report.
“Unusually high growth rates in this quarter are likely to be seen,” said Zhu.