Forming Joint Ventures is a Subtle Form of Expropriation According to German Auto Parts Makers

Aug 26, 2014 01:42 PM EDT

(Photo : Reuters) Flutter next to a national emblem and a national flag of China on top of the Great Hall of the People, which is the venue of the closing ceremony of the Chinese People's Political Consultative Conference (CPPCC), in Beijing, March 12, 2014.

In order for three unnamed German auto parts makers to continue their operations in China, they have to form joint ventures with the local companies, reports state.

According to Stefan Wolf, CEO of the ElringKlinger - an auto parts maker, China has notified several German auto parts suppliers that they will no longer be permitted to operate independently inside the country. However, they were reportedly given an option which is to create joint ventures with local suppliers and manufacturers.

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Wolf clarified that his company has not been asked to do so as of yet, but stated that if it happens in the future it will be a clear reflection of expropriation where terms of privately owned intellectual property are concerned.

Robert Bosch of GmbH, an auto parts maker, said that foreign investment plays a vital role in China's development and the country is pushing through improving investment environment and fairness in competition between companies.

This development is the result of China's urge to change its foreign investment rules concerning the automotive sector due to price manipulation present in the industry.

Reports from the China's National Development and Reform Commission (NDRC) issued that they are probing on more than 1,000 foreign and domestic companies on auto sector involved in monopolistic practices.

The NDRC had charged a 1.24Bn Yuan to four bearings manufacturers and eight Japanese auto parts makers for their allegedly collusive behaviour.

NDRC authorities also found same monopolistic practices at Audi and Chrysler.

Experts say that the implementing of joint venture between a local and a foreign company would be a way of checks and balances between the companies.

Joint ventures between two companies, for this instance, a foreign and a local one, would mean sharing in assets and liabilities, profits, revenues and expenses. To note foreign companies are quite aloof in sharing their knowledge and strategies when it comes to business.

Tagsgerman auto parts, Stefan Wolf, ErlingKlinger