Subaru and Chery joint venture nears final approval in China
Chinese authorities are expected to approve the Subaru-Chery joint venture after Fuji Heavy Industries agreed to key branding and sales conditions.
Subaru and Chery’s proposed joint venture is expected to secure final approval from Chinese regulators after more than a year of negotiation and delays. The breakthrough comes as Fuji Heavy Industries, Subaru’s parent company, has agreed to Chinese demands on branding and sales management, according to sources close to the process.
Conditions for approval
Chinese authorities had previously blocked the joint venture, citing Toyota’s 16.5 percent stake in Fuji Heavy Industries and existing Toyota partnerships in the country. The revised proposal now addresses two main conditions set by the Chinese government: Subaru vehicles produced under the venture will wear the Chery badge, and Chery will lead the sales network for the joint venture’s products in China.
Fuji Heavy Industries and Chery Automobile first signed an agreement in early 2011 to establish the joint venture, with plans to build a production facility in Dalian, Liaoning province. Subaru’s Chinese sales partner, Pang Da Group, has supported the joint venture from the outset. The National Development and Reform Commission (NDRC), which regulates foreign investment in China’s automotive sector, rejected the initial proposal in September 2011, largely due to concerns over overlapping interests with Toyota.
Implications for Subaru and Chery
Approval of the joint venture would allow Subaru to begin local production in China for the first time, potentially reducing costs and improving competitiveness in the world’s largest car market. For Chery, the deal brings access to Subaru’s all-wheel-drive technology and engineering expertise, while strengthening its position as a domestic partner of a major Japanese brand.
The agreement also reflects the Chinese government’s continued insistence on local branding and sales control for foreign joint ventures. The requirement for Subaru vehicles to carry the Chery badge is unusual among Japanese manufacturers, who typically retain their own marques in Chinese partnerships. This compromise, however, appears necessary for Subaru to gain access to local production rights.
Next steps and context
Once the revised proposal is formally approved, Subaru and Chery are expected to begin preparations for production at the Dalian site. The timeline for start of production has not been confirmed. The move follows similar joint ventures between Chinese and international manufacturers, such as Jaguar Land Rover’s partnership with Chery and Volkswagen’s extensive local operations. For more on China’s growing automotive sector, see China car exports surge nearly 50% in 2011 as firms target new markets
The joint venture’s approval would mark a new phase for Subaru’s presence in China, but the branding and sales concessions underline the challenges faced by foreign carmakers entering the market under current regulatory conditions.
