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China says “Trade your technology for our market”

According to WSJ,

China’s government is considering plans that could force foreign auto makers to hand over cutting-edge electric-vehicle technology to Chinese companies in exchange for access to the nation’s huge market…

China’s Ministry of Industry and Information Technology is preparing a 10-year plan aimed at turning China into “the world’s leader” in developing and producing battery-powered cars and hybrids, according to executives at four foreign car companies who are familiar with the ministry’s proposal.

The draft suggests that the government could compel foreign auto makers that want to produce electric vehicles in China to share critical technologies by requiring the companies to enter joint ventures in which they are limited to a minority stake.

The government figured out China’s market is too great for foreign auto makers to say “No”.   It’s a trade off both parties understood:  either losing some technology secrets to Chinese or completely being shut out of the market.

This is a strategic game.  And Chinese look smart.  The hope is that both parties still see there are mutual gains to be made.

But Chinese policy makers risk going too far.   Asking foreign auto makers to give away too much of their tech secrets will generate perverse incentives:  foreign auto makers may respond to this policy by only using the less advanced technology in China’s car manufacturing.  “Yes, we are going to share with you technology, but only the old dated ones”.

China’s domestic consumers may also suffer – cars equipped with the best technology may become unavailable to domestic car buyers, or only available through imports, but at a much higher price.

The future of Volvo

Geely acquires Volvo – Now is official

This is another landmark acquisition after Lenovo’s purchase of IBM personal computer division more than five years ago, reports WSJ:

The chairman of China’s Zhejiang Geely Holding Group Co. traveled to Sweden Friday to finalize his company’s acquisition of Ford Motor Co.’s Volvo car unit, a landmark deal for China’s burgeoning car industry that also poses serious challenges for Geely.

Geely Chairman Li Shufu is expected to preside over the signing of the deal in Sweden as early as Sunday, according to two people close to the Chinese company. Under the preliminary agreement, Geely will pay $1.8 billion for Ford’s unprofitable Swedish car brand, with loans and other financial backing from banks in China, the U.S. and Europe, including low-interest loans guaranteed by the governments of Sweden and Belgium, one of the two people said. Geely’s Hong Kong-listed unit, Geely Automobile Holdings Ltd., and some Chinese local governments also would invest in the deal, the person said. He wouldn’t identify those investors.

A final deal would be the culmination of years of planning by Geely and intensive negotiations with Ford over the last 18 months. The deal would make Volvo one of the most prominent foreign brands to be purchased by a Chinese company, and would mark the first time a Chinese company has acquired the full operations of a major foreign auto maker.

It would also be the biggest step so far in a broader push by China to create a handful of globally competitive auto makers out of an industry that today is largely fragmented. That effort has had mixed success: Beijing Automotive Industry Holding Co. reached an agreement in December to acquire certain assets of General Motors Co.’s Saab unit, but another Chinese company, Sichuan Tengzhong Heavy Industrial Machinery, last month abandoned a planned purchase of GM’s Hummer unit after failing to gain Chinese government approval.

Also watch this video report from CNN: