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BMW to pay $4.1bn to raise stake in China car venture

BMW is the first automaker to allow foreign companies to take majority control in their local partnerships in the car market.

BMW will raise its stake in the venture with Brilliance China Automotive, becoming the first automaker to take advantage of China’s policy to let foreign companies take majority control in their local partnerships in the world’s biggest car market.

The German luxury-car maker agreed to pay 3.6 billion euros ($4.1 billion) to increase its holding to 75% from the current 50%, the carmaker said in a statement Thursday. The deal will be completed in 2022, when China plans to alter the rules governing partnerships in the automobile industry.

The deal lets BMW increase manufacturing capacity and expand local production of models including new-energy vehicles, allowing it to lessen the impact of the US-China trade tensions. The pact also shows China’s government is following through on its pledge to open up the economy to foreign ownership after the 50:50 joint-venture rule that has restricted global brands’ access to the market for decades.

Harald Krueger, BMW’s chief executive officer, met Chinese Premier Li Keqiang Wednesday in Beijing. Krueger said China will not only become BMW’s biggest market but also an important manufacturing hub to make cars for export to other markets, according to a Chinese government website.

The deal, first reported by Bloomberg News in July, has been a drag on the shares of Brilliance China. The stock has slid 49% this year amid investor concerns about the deal, which would leave the Chinese company entitled to a smaller share of the venture’s future earnings.

Brilliance, which got most of its earnings from the partnership last year, has a market capitalisation of about $7 billion. The shares, the second-worst performer this year among Chinese car stocks traded in Hong Kong, were halted early Thursday.

BMW is the biggest exporter of vehicles from the US to China, putting it among major companies most exposed to a trade war. BMW has warned that trade tensions could drag on profits in the coming months. Last year, the carmaker shipped more than 100 000 sport utility vehicles to China from its Spartanburg plant in South Carolina.

Krueger has said that the company has a number of options to offset the higher barriers to trade, including an existing assembly in Thailand that pieces together X5 SUVs from ready-made kits. BMW has started to build the X3 model at the Shenyang factory in addition to two other production locations in the US and South Africa.

BMW will start making its first pure electric vehicle in China under the joint venture with Brilliance China by 2020. The model will be sold in China and also exported to other markets.

China and Germany are forging closer ties with each other as trade relations worsen with the U.S. Krueger was in Berlin in July during a summit between Li and German Chancellor Angela Merkel. Among discussions were opportunities to open up China more to foreign investment.

© 2018 Bloomberg L.P

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